Gavekal Capital: Is Energy's Dead Cat Bounce Over?

Thursday, February 12, 2015

Is Energy's Dead Cat Bounce Over?

On an equal-weighted basis, the energy sector has still been the best performing sector in February. It is nearly 7% higher this month, however, it has been the worst performing sector so far this week (-1.5%).

MSCI World Index Performance By Sector

Only 14% of energy stocks are positive this year but shorter term momentum has improved. Unfortunately, it has improved to the point where momentum tends to stall out. 75% of energy stocks are now trading above its 50-day moving average. 80% tends to be an unsustainable level for very long.

Longer term momentum still looks pretty weak. Only 19% of energy stocks are trading above its 100-day moving average and only 9% of stocks are trading above its 200-day moving average.

Lastly, only 6% of stocks have a 50-day moving average trading above its 200-day moving average. This series needs to turn higher before we would feel confident that the bearish trend in energy stocks has turned. In the chart below we chart this series against the six month returns of the MSCI Energy sector.

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