The energy rally continues.
The XLE Energy ETF has been ahead of the broader market again in the past month, rising nearly 13% versus the S&P 500’s 4% drop as global oil demand outstrips its supply. An OPEC + production decision when the bloc meets on Monday could be the next big bullish or bearish catalyst for the sector.
Craig Johnson, Piper Sandler’s chief market technician, remains bullish on the industry.
“It’s very clear, any kind of move from here will probably go up to $ 65, and then you’ll see a breakout on the surface,” he told CNBC’s “Trading Nation” on Friday. “You’ve made a beautiful higher low on a multi-year basis when you look at that XLE chart.”
The XLE ETF closed at $ 53.84 on Friday. A move to $ 65 implies an increase of 21%.
Johnson said that while many portfolio managers tend to undervalue energy companies, the global environment and the technical configuration of the sector make it a strong bet.
“These portfolio managers won’t be able to avoid this space for long,” he said. “For the traders out there today, I think they have to get ahead of the movement.”
He suggested that traders buy Devon Energy, Range Resources, EOG Resources and Pioneer Natural Resources.
“These are all stocks that should probably be bought, because they will definitely benefit in the future,” he added.
In the same “Trading Nation” interview, Michael Bapis, managing director of Vios Advisors at Rockefeller Capital, also defended the sector.
“The energy sector was affected during the pandemic,” he said. “They will also benefit from the recovery.”
From a fundamental standpoint, Bapis said, many of these energy companies have low price-to-earnings ratios and high dividend yields, making them strong games, especially in today’s growth-to-value rotation environment.
The sector will also benefit as winter approaches and demand for natural gas and oil increases further, exacerbating current supply and demand imbalances, Bapis said.
“I see the recovery will last,” he said, adding that “if we look 12 to 18 months from now, you will see this sector on the rise.”