Signs of a new uptrend in oil and gas prices may catalyze investor interest in ConocoPhillips (COP) and Devon Energy (DVN) among our most depressed buy recommendations. Average futures prices for the next six years for crude oil and natural gas appear to be in a new uptrend following the advance for the past five weeks in a leading indicator of price action at market extremes.
To get a jump on when prices might turn, we borrowed some ideas from an analyst who studies price patterns (see the book, Technical Analysis of the Financial Markets by John J. Murphy). Using the six-year futures that we have calculated weekly for the past nine years since the inputs have been publicly available, we plot the ratio of a shorter 10-week moving average to the longer 40-week moving average we have cited frequently. The ratios bottomed and turned up five weeks ago for oil and for natural gas. Taking the cue, our weekly tally of oil futures followed in two weeks while natural gas may be following now.
COP and DVN might be especially helped in the event of positive follow-through because those stocks are the two among ten large cap buy recommendations that simultaneously rank practically lowest on McDep Ratio, Enterprise Value to 200-day average and Enterprise Value to 50-day average. Finally on COP, attending the company’s analyst meeting last week and visiting with management, we are reinforced in our investment conclusion.
Originally published on March 17, 2009.
