Drill baby drill…

Today I’m going to show you how to find hidden gushers in the energy stocks sector – even though the sector itself is still in the midst of a brutal correction.

The first serious lesson every self-directed investor learns is to stop taking catastrophic losses. Legions of investors in the energy sector have undoubtedly learned this lesson the hard way over the past two years.

Oil is down over 60%.

The Energy Select Sector SPDR (XLE) is down over 30%.

During their declines, both of these assets have had substantial counter-trend rallies of 20% or more only to reverse course, give up those gains and disappoint investors once again.

It’s situations like this which led me to create the algorithms that now define my investment and risk management strategies. The Smart Trailing Stop gives us enough room to stay in an investment for maximum gains and takes us out when the tables start to turn. The Smart Moving Average keeps us out of brutal downtrends like we’ve seen in the energy stock sector and tells us when things have changed enough to consider getting back in.

These indicators have done a phenomenal job of preserving capital during the brutal energy rout and they are still decidedly bearish.

So why am I talking to you today about finding hidden gushers in the energy stocks sector?

I have to admit that even I get interested when an entire sector is staging its fourth rally attempt after three major failures. Moreover, as we can see in the VAP chart of XLE, it just bounced off of some MAJOR support levels.

I think that this could be the start of a significant rally in energy sector stocks but my very own indicators are telling me to stay on the sidelines. What’s a guy to do?

Drill…down.

XLE is composed of 40 different companies in the energy sector … and we can use our very same indicators to see which ones are showing the most strength in the face of the energy sector headwinds.

As an exercise, I took the top 20 holdings of XLE by their weights in the index and put them in a Watch Only portfolio in TradeStops. Not surprisingly, there were a LOT of stopped out stocks. In fact 85% of these stocks were stopped out and have yet to trigger Re-Entry Rules.

Three component stocks, however, stood out as having potential – Cameron International (CAM), Spectra Energy (SE) and Valero Energy (VLO).

Cameron International triggered a Re-Entry Rule back in early November 2015. Since that time, it dipped into its Low Risk Zone and has risen back out with good support from its Smart Moving Average.

Spectra Energy (SE) triggered a Re-Entry Rule just recently. It’s had a strong bounce off of its lows and the Smart Moving Average is really starting to slope up.

Finally, Valero Energy (VLO) never hit the pause button. Remarkably, it’s continued to climb all the while that the rest of the sector has been getting pummeled. Valero is, of course, a refining company, which has benefitted from the drop in oil prices because it reduces Valero’s costs.

Valero recently dipped deeply into its Low Risk Zone but has since risen sharply back out.

So the next time that you’re looking to get a jump on a brutalized sector and invest in energy stocks, don’t throw your indicators in the wastebasket … just drill baby drill.

Stay true,

To your success,