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2015: Recovery Year for Energy and Commodities?

  • Written by Syndicated Publisher No Comments Comments
    January 4, 2015

    Last year was a dismal year for oil, the energy sector in general, commodities, and gold.

    Following through with the theme of my weekend newspaper column of how investors tend to shop for the next year’s winners from the lists of the previous year’s hottest out-performers, while studies show they’d be much better off considering the previous year’s under-performers, leads us to the worst performers of last year.

    Are they oversold? Are their bear markets over? Are they at least due for a bear market rally?

    Oil.

    So far, oil is showing no signs of bottoming. After attempting to hold at $55 a barrel in December, it has declined to a new low.

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    But is it a sign of a bottom approaching that pundits have moved from reasons to expect $80 to hold, then $70, then $55, to reasons why it will go lower, $50, $40 gaining popularity?

    No longer is it that OPEC countries will have to cut production to boost prices and protect their industries. The story now is that OPEC countries want to push oil prices lower, willing to live with the short-term pain in hopes of forcing high-cost oil producers out of business (deep-water drillers, U.S. oil frackers, etc.). 

    If that is their goal, a secret alliance, is a 50% plunge not close to being enough to accomplish that goal? We don’t have a buy signal on it yet, but we are watching closely.

    Energy sector.

    While the S&P 500 gained double-digits last year, the energy sector declined 25% over the last six months, following oil down. Is that enough for at least a bear market rally even if there is to be another leg down?

    There are some encouraging signs on the charts. the sector’s internal strength has reached its intermediate-term oversold zone, and did not confirm the sector’s last low (its internal strength made a higher low).

    We would not buy at this point, with the majority of our momentum indicators like MACD and William’s 14%R still on sell signals.

    But it is another area we are watching closely as we enter the new year.

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    Commodities:

    It’s a similar situation with commodities. Certainly underperfomers in 2014, and out of favor.

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    But will the Fed finally gets its wish in 2015 for some degree of inflation to show up. It sure could happen if the economy continues to grow and the Fed leaves interest rates near zero a few more months.

    The Fed’s target is 2% inflation, even a bit more. It got only 1.3% in 2014.

    United States Inflation Rate

    And then there is:

    Gold.

    Down 38% in its bear market from 2011, could it become a big winner in 2015?

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    If so, will the gold-mining stocks be a bigger winner than gold bullion?

    The gold-mining stocks are down 70% in gold’s bear market. Just a 50% retracement of the bear market decline would be a 107% gain in the XAU Index of Mining Stocks.

    We don’t have a buy signal yet, and a lot of investors have experienced serious losses trying to pick the bottom. But we are watching closely.

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    Not that beaten down areas are the only prospects, but these are a few of the interesting areas we are watching as a new year begins.

    U.S. market. Short-term.

    When the market became short-term overbought above 50-day moving averages in early December, and our short-term indicators triggered sell signals, we said it would be just a 4% to 5% pullback to alleviate the overbought condition and cool off the high level of bullish investor sentiment before the upside would resume.

    The S&P 500 pulled back exactly 5%, and the upside resumed to new highs.

    But the entire pullback and recovery, which might normally take place over a couple of months, took place in just 3 weeks. Short-term overbought again, it rolled over the last two days.

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    To read my weekend newspaper column click here: Seasonal Sweet Spot for Small Stocks-

    Subscribers to Street Smart Report:

    In addition to the charts and analysis in the subscribers area of this blog, the new issue of the newsletter from Wednesday is in your secure area of the Street Smart Report website.

    NON-SUBSCRIBERS: We have updated the sample issue of our newsletter to a later issue you may find interesting.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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