We said in our crude oil price forecast that there was a potentially bullish scenario in 2017. “Prices could certainly move higher, but will find secular resistance at $75 where the 2014 gap down started” was what we wrote a while back. Energy stocks got a strong boost early last year, and after Trump’s victory. But will crude oil continue its rise, and are energy stocks a good play to ride a rising oil trend?
It seems that we are at a decision point right now in the energy market. Crude oil is hitting $52 today. As seen on the chart below, that’s exactly the boundary of a strong resistance area. In other words, IF the $52 level holds, crude oil prices will most likely pierce through resistance. In that scenario, there is upside potential to the $70 – $80 area, as a best case scenario. Specifically that scenario will be very bullish for energy stocks, so investors should watch very closely what crude oil does at $52.
Are energy stocks an interesting investment in 2017?
In case $52 in crude oil holds, then energy stocks are the place to be. The XLE sector ETF, representing energy stocks, arrived at an equally important price level, similar to crude. As seen on the next chart, 76 points in the XLE ETF carries a very high level of importance.
The key question for investors is how much upside potential there is in energy stocks. One way to look at that question is to analyze the XLE ETF chart above. It suggests potential till all-time highs at 95 points, a rise of almost 25 pct, which is considerable. Another way to look at it is by means of the relative strength chart: XLE vs the S&P 500, chart below. That chart confirms the upside potential.