eResearch | Keith Richards of ValueTrend was on Bloomberg/BNN Market Call on Friday, Novemeber 22 and one of the topics that came up was the outlook for the Canadian energy sector.
Mr. Richards believes that Prime Minister Justin Trudeau “has apparently pulled his head out of his water box” and is now taking seriously the importance of the Canadian oil industry to Canada as a major contributor to the Canadian economy in terms of jobs and overall GDP growth.
The question is … will the Canadian government’s redefined approach to the Canadian oil industry result in rising energy stock prices?
Energy Sector Still Trending Down
As any Canadian energy investor well knows, Canadian energy stocks are still in the doldrums without any obvious signs of coming to life. In fact, as the following chart shows, the Energy Index ETF, XEG, continues to make lower lows and lower highs ever since the double top in mid-2018. And this is only a part of a prolonged energy sector down-turn.
4-Year Price Chart – XEG.TO – iShares S&P TSX Capped Energy Index ETF
So, while investors wait for the sector to bottom and begin building a base for future recovery, at the moment, there are no such encouraging signs.
Moreover, as indicated in our monthly Seasonality Trends report, oil and the energy group do not enter their positive seasonality period until next February.
Crude Oil Price
The only way that Canadian energy stocks are going to catch a bid is for the price of oil to break out of the sideways movement that it has been caught in for some time. The following chart shows that WTI Crude Oil has been trending within a right-angled triangle since mid-2018, and trending similar to the Energy Index ETF shown in the previous chart.
For the price of crude to move higher in a sustaining way, it has to break out of the triangle as drawn on the chart. The next points of resistance would be the latest high recorded in September at around US$63/bbl and then the previous high in April at around US$65/bbl. Ultimately, it has to break above the top of the triangle started in mid-2018 at around US$75/bbl.
Thus, there are several technical obstacles standing in the way of the Energy Sector’s resurgence. Investors may have to wait for the positive seasonality period next February to see constructive action.
5-Year Price Chart – WTIC Light Crude Oil
ValueTrend Article
You can read the entire ValueTrend article here: https://www.valuetrend.ca/will-canadian-energy-break-out/
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