Bears are attacking leaders; MKM says these energy stocks are at risk

Rise in gasoline prices concept with double exposure of digital screen with financial chart graphs and oil pumps on a field.

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No sector is safe in bear markets and the current selling of winning stocks is typical of the later innings of market declines, MKM Partners says.

"The high degree of correlation between Crude Oil (CL1:COM) (USO) (CO1:COM) (BNO) and Energy stocks (NYSEARCA:XLE) broke last week," MKM Chief Market Technician J.C. O'Hara wrote in a note. "Energy equities experienced nearly double the selling pressure compared to WTI crude."

"Year to date, Energy is the sole sector in the green ... but concern now is that fact that Bears are coming after winners, thus they may take Energy down," O'Hara said. "The Energy Sector undercut its rising 50 DMA and now looks lower to the rising 200 DMA, which is currently -9% below last Friday's close. Crude Oil is sitting on its rising 50 DMA and has a stronger technical pattern."

"Normally we like to buy pullbacks within uptrends," he added. "Our concern at this point in the Bear market cycle is that leadership stocks are often the last domino to fall, and thus profit taking is the greater motivation."

"The fight-or-flight mentality currently favors flight, so we would rather downsize our positioning in Energy stocks and harvest some of the outsized gains achieved following the March 2020 COVID low."

The following stocks have downside risks, according to O'Hara's chart analysis: Antero Midstream (AM), Archrock (AROC), Baker Hughes (BKR), DMC Global (BOOM), ChampionX (CHX), Core Labs (CLB), ConocoPhillips (COP), Callon Petroleum (CPE), Chevron (CVX), Dril-Quip (DRQ), Devon Energy (DVN), EOG Resources (EOG), Equitrans Midstream (ETRN), Diamondback Energy (FANG), Green Plains (GPRE), Halliburton (HAL), Helix Energy (HLX), World Fuel Services (INT), Kinder Morgan (KMI), NOV (NOV), Oceaneering International (OII), Oil States International (OIS), ONEOK (OKE), ProPetro (PUMP), Pioneer Natural Resources (PXD), RPC (RES), REX American Resources (REX), Schlumberger (SLB), U.S Silica (SLCA), Bristow Group (VTOL), Williams Companies (WMB)

Exxon says energy markets will remain tight for years.

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