The slide in oil prices quickened its pace this month, driving crude below the key $70 level on Wednesday. But some strategists say equity investors shouldn’t throw in the towel yet, as a year-end bounce-back for energy stocks is still on the cards.
The dip below the crucial psychological threshold came amid a 26% decline in crude prices from a late-September high. Energy stocks have followed suit, with the S&P 500 Energy Sector Index sinking 13% over the same period. Now strategists and technical analysts say the weakness has set up some corners of the sector for a rebound.
The relative performance of energy-related stocks compared to the broader market hasn’t been broken yet, and the “short-term downtrend remains part of a larger uptrend,” according to an analysis by Fundstrat’s technical strategist Mark Newton, that compared the Invesco S&P 500 Equal Weight Energy ETF (ticker: RSPG) with the Invesco S&P 500 Equal Weight ETF (ticker: RSP).
“This selloff, which has taken many parts of Energy to oversold levels, should now represent an attractive risk/reward situation to consider Energy heading into year-end,” Newton wrote in a note on Wednesday. A technical oversold signal is typically a bullish indicator, suggesting a reversal may be around the corner.