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%.
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.
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.
Valero recently dipped deeply into its Low Risk Zone but has since risen sharply back out.
To your success,
Richard M. Smith, PhD