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The Trade: Energy Stocks Weaken Further

May 03, 2011 12:18 PM ET
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 Oil stocks have nowhere to go but down. That was the analysis given last week in an article on this very blog. At this time, Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) were trading at their double top, 52 week highs. This hypothesis was based on the current price of oil between $110 and $115 per barrel. The analysis clearly showed that higher oil would cause the markets to sell putting pressure on oil stocks, based on an economic slowdown, while lower oil would cause the oil stocks to sell directly, even if the markets moved higher. Essentially it was a lose, lose situation for oil stocks. In addition, stocks like Chevron and Exxon had rallied 60% higher in the last ten months. Since that alert, the oil stocks have stalled out and started to retreat. Chevron hit a high of $109.17 that day and is now trading back to $107.00 This should continue in the coming weeks.

Any sector related to energy seems to be on the weak side over the last few days. Just last week, Total SA, a European oil company, agreed to buy up to 60% of SunPower Corporation (NASDAQ:SPWRA) for $1.38 billion. The whole solar sector opened sharply higher on this positive news. However, by the end of the day, many solar players had given up a majority of their gains. By today, the entire gains from that news and then some have been wiped out. This is very bearish for the sector. After the close of trading, First Solar, Inc. (NASDAQ:FSLR) will report earnings. This will shed more light on the solar industry. If oil continues lower, solar stocks should remain weak.

Gareth Soloway

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