November 26, 2013 Leave a comment
The recent news about a deal with Iran has triggered a barrage of comments and predictions. While the media paints today’s decline in Energy stocks as a reaction to this deal, others race ahead to pronounce their downward targets for oil and oil stocks. In the end everyone agrees – it’s bad news for the Energy sector so sell, sell, sell! But really?
Fundamental analysis tells us how rational investors should behave while technical analysis tells us how actual investors do behave. If you put aside all emotions, opinions and expectations and look closely at the market reaction to this news, you might arrive at an entirely different conclusion.
The Energy sector, as measured by the XOI index, has rallied more than 10% since the October lows. It is trading above its rising 50- and 200-day moving averages and even above its short-term and rising 21-day moving average.
The news, which supposedly should depress Energy stocks hasn’t had much effect on the sector, if any. What gives?
Once again, the market has proved that what others think about how investors should react to this news differs from how actual investors behave. It pays to pay attention to price!
Of course, some could claim their victory as the market and Energy stocks are in dire need of a pullback (Exxon Mobil, for example). However, given the recent breakouts in some Energy stocks, any pullback should be viewed as a buying opportunity. The price action tells us that Energy stocks may well be the sector that leads this bull market by its nose to its conclusion.
Don’t take our word for it. Look at the price action.
Chart courtesy of StockCharts.com