Chart o’ the Day: Energy Breaks Out

One of our fave sectors for 2014 continues to be Energy. Valuations are depressed relative to the rest of the S&P 500 and performance has lagged since the rally began in the fall of 2011.

In the meantime, commodity prices have been resilient despite all the deflation talk and China slowdown concern. On top of that, shareholder-friendly initiatives across the sector seem to be popping up everywhere – from increased dividends to the willingness to spin off non-core assets and break apart empires. This is bullish.

Here’s Bank of America Merrill Lynch’s technician Stephen Suttmeier with the technical set up:

We highlighted Energy as a sector showing good tactical relative strength. Two signs of relative rehab for the sector that we highlighted in our Monthly Report were

1) reclaiming the prior relative lows from 2010 and 2012 and

2) sustaining the move above the 13, 26, and 40-week moving averages relative to the S&P 500. S&P 500 Energy has done both.

In addition, S&P 500 Energy is pushing to new all-time highs with confirmation from the sector advance-decline line (side bar). The relative set-up for Energy is similar to that of October 2010, when the sector moved above its 13, 26, and 40-week relative moving averages and outperformed until April 2011.

…and his chart, showing the relative breakout of the sector versus the S&P 500:

Source:

Energy remains tactically strong
Bank of America Merrill Lynch – April 22nd 2014