Energy Stocks Look Oversold

| About: Energy Select (XLE)
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With 2009 often serving to redefine the ranges of returns so far, the energy sector is clearly no exception. And with oil prices looking to retetst the low-$60 per barrel range and potentially even the mid-$50s, the near-term equity sentiment remains rather negative.

So far in July, the S&P/TSX Energy Index has returned roughly -7.2%, the Integrated Oil Index is down 12.3%, both the E&P Index and Energy Service Index have returned -8.0%., and the Energy Trust Index is down 5.8%.

But given that the volatility of returns in 2009 has so been high, once commodities stabilize, exceptional positive returns may follow soon after. As a result, analyst William J. Lacey at FirstEnergy Capital suggests investors should look to increase their energy weighting.

He said in a note:

With oil prices now nearing the levels investors believed they were going to retest, and the magnitude of downwards share price movements thus far in July, it appears as though energy stocks may be getting into an oversold position.

In the past week or so, a handful of Canada’s biggest energy companies have seen their shares fall by nearly 10% or much more in some cases.