Is it Time to Take Profits in Energy Stocks?

(6/7/22) Energy Prices have been on the rise for myriad reasons, including the Russia/Ukraine War, and an under-supply of domestic oil thanks to regulatory changes. The energy indexes have followed suit, up nearly 50% this year, while the S&P is down 14%--an amazing out-performance that historically does not last for long. So, it is time to take profits in energy stocks? Energy prices, as a proxy for energy stocks, are worth noting: Oil at $118/bbl is three standard-deviations above the 50-MMA of oil prices. That's a more than 4-year stretch of prices above long-term moving averages (remember, moving averages are averages for a reason: Prices had to trade above AND below that average over a period of time.) Just three years ago, energy prices were trading at a NEGATIVE, three standard-deviations BELOW that same 50-month moving average. In 2020 no one wanted to own energy stocks because they were in the tank; now, everyone can't get enough of 'em. The last time we saw this phenomenon was in 2008. With prices currently over-extended, and the economy going into recession, there are implications for a reduction in demand, and a consequential drop in energy prices from reduced demand and increased supply. Prices will revert--maybe not this month or the next--but now would be a good time to think about taking some profits in energy stocks off the table.

Hosted by RIA Advisors' Chief Investment Strategist, Lance Roberts, CIO
Produced by Brent Clanton
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