Prepare for higher energy costs in 2024...
Oil supply looked plentiful last year. Back in November, the International Energy Agency ("IEA") predicted that demand would ease. It expected volatility to calm down as life "post-COVID" returned to normal...
But the universe had other plans.
Saudi Arabia and its allies – known as OPEC+ – issued an announcement shortly after the IEA made its projection. The nations said they would cut oil production by about 2 million barrels a day starting in January 2024.
The change was supposed to be temporary. But this month, OPEC+ announced it would keep the cuts going through the second half of the year.
Now, the IEA believes the measure won't stop until the end of 2024 at the earliest.
When you add in the shipping disruptions from the Houthis in the Red Sea, supply is getting pinched. Last Thursday, the IEA issued a new report that predicted a global oil deficit in 2024... a complete flip from its position six months ago.
This new outlook points to higher energy costs for consumers. But investors should take note, too.
Today, the whole energy sector is rallying. And one technical signal suggests that it will keep soaring higher from here...
Higher oil prices are bad for consumers... But they're good news for energy investors.
Today, the sector is soaring. And one indicator suggests the rally is just getting started. That's because energy stocks just completed what's called a "golden cross"...
A golden cross appears when an asset's short-term price average overtakes its long-term price average. It's usually a bullish signal.
To see this for energy stocks, we'll use the 50-day moving average (50-DMA) and the 200-day moving average (200-DMA)...
Both of these indicators smooth out the noise of daily price moves to create longer-term price averages. The 50-DMA is an average of the past 50 days of prices, and it acts as a short-term trend line... while the 200-DMA takes the average of the past 200 days for a longer-term trend line.
When the 50-DMA rises past the 200-DMA, it generates the golden cross.
We can see this move beginning in the Energy Select Sector SPDR Fund (XLE) today. This exchange-traded fund holds a wide range of oil companies, so we can use it to track the performance of the broader energy sector.
XLE's new golden cross is just starting to form. Take a look...
After a brief dip to start the year, XLE's short-term average is now climbing back above its long-term average.
Again, that's a big signal for higher prices – especially when the long-term trend is up. Check out XLE's history of golden crosses...
As you can see, when the 50-DMA overtakes the 200-DMA, it tends to signal a jump in energy stocks... particularly when the 200-DMA is in an uptrend. And that's exactly the pattern we're seeing in XLE today.
Energy expectations are shifting from oversupply to undersupply. And now that we have a golden cross in XLE, this new rally should get underway in earnest.
Buying XLE is a great way to take advantage of this setup. But that's not the only way to get a piece of the action... Major oil companies like ExxonMobil (XOM) and Chevron (CVX) also stand to benefit.
If you don't hold energy stocks in your portfolio, I suggest building a position now. As oil prices surge, the sector is likely to head much higher from here.
Good investing,
Sean Michael Cummings
Further Reading
"Bearishness is at the worst level on record for the soybean market," Brett Eversole writes. Almost no one is paying attention to this commodity right now. But once sentiment reverses, this overlooked market could present a solid buying opportunity... Read more here.
Gold has been hitting new highs recently. Investors have been slow to take interest. According to history, though, now isn't the time to ignore this precious metal. Its rally is only just getting started... Learn more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
General Dynamics (GD)... "offense" contractor
Visa (V)... payment-processing giant
JPMorgan Chase (JPM)... financial giant
Progressive (PGR)... insurance
Cigna (CI)... health insurance
Microsoft (MSFT)... tech giant
Amazon (AMZN)... online-retail king
eBay (EBAY)... online marketplace
Procter & Gamble (PG)... consumer goods
Colgate-Palmolive (CL)... household goods
Chipotle Mexican Grill (CMG)... tacos and burritos
Hilton Worldwide (HLT)... hotels
W.W. Grainger (GWW)... industrial supplies
General Electric (GE)... manufacturing
Trane Technologies (TT)... HVAC manufacturer
Waste Management (WM)... trash and recycling
O'Reilly Automotive (ORLY)... auto parts
Phillips 66 (PSX)... oil and gas
Southern Copper (SCCO)... copper
NEW LOWS OF NOTE LAST WEEK
Agilon Health (AGL)... physician services
Concentrix (CNXC)... customer-experience solutions
Iridium Communications (IRDM)... mobile-satellite service
MP Materials (MP)... rare earth mining
