West Texas crude continued its slide on Thursday, but energy stocks are gaining.
There’s a case for staying bullish on energy stocks. S&P Capital IQ consensus estimates put fiscal 2017 earnings per share growth for the sector at a whopping 301%. Cyclical sectors such as financials, materials, information technology, and energy are expected to be earnings-growth leaders, says CFRA Research‘s investment strategist Lindsey Bell.
Last week, Ned Davis Research Group decided to raise the firm’s energy exposure based on a bullish outlook on oil and its belief that the sector’s relative performance will remain “highly correlated” to the price of crude. To be sure the diverging performance of USO and XLE doesn’t show that, but NDR’s Pat Tschosik in a note published today said that that the correlation between oil and the relative strength of the energy sector should stay high if oil remains in the $50s. Tschosik says:
For a more intermediate-term measure of oil momentum, one of our sector model indicators for Energy looks at the six-month rate of change of crude, with a six-month moving average. As long as this smoothed rate-of-change remains above 5%, the indicator remains bullish for Energy relative strength. The current rate of change is 10%, meaning we are still firmly in bullish territory.