Energy stocks power summer rebound

After months in the doldrums, equities are perking up for the first time since May.

By Anthony Mirhaydari Jul 8, 2013 12:24PM

Arrow Up (© Photodisc/SuperStock)We're off to the races again. Yes, there are still risks on the horizon. The upcoming second quarter earnings seasons could be a dud. Egypt could blow up. The Federal Reserve could keep talking up the dreaded "taper" of rolling back its cheap money stimulus. Meanwhile, the economic data remain relatively weak, with manufacturing activity slowing and job gains concentrated on low-wage, no-benefit part-time positions.

 

But for the first time in months, investors are looking past all this and are buying stocks hand over fist, particularly energy stocks. As a result, the Dow Jones Industrial Average ($INDU) is breaking out of a multi-month downtrend pattern, while small cap stocks are already pushing to new record highs. Signs abound that the strength will continue. Here are the highlights.





The chart above shows how the Morgan Stanley Cyclical Index (CYC), which is tied to the performance of economically-sensitive stocks like Ford (F) and Caterpillar (CAT), is rounding into an uptrend pattern for the first time since early May. Where cyclicals go, the rest of the market tends to follow.



There's more. Investor sentiment is recovering from a bout of pessimism. Market breadth is recovering from lows not seen since November. And buying pressure from the late June market bottom has been steady and broad: Since June 24, we haven't seen a down day with more than 700 net declining issues on the NYSE.



Currently, after the recent surge in crude oil towards $104 a barrel, energy stocks are leading the way higher. You can see this in the breakout underway in the Energy Sector SPDR (XLE), shown above. My favorites in the space are National Oilwell Varco (NOV) and Schlumberger (SLB). I'm adding both to my Edge Letter Sample Portfolio.

 

Disclosure: Anthony has recommended NOV to his clients.

 

Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


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10Comments
Jul 8, 2013 1:09PM
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I respect your hard work and diligence Anthony.  The top went away the day Bernanke gave up the ghost and gave off  his famous this isn't working but we will go ahead anyway.  You didn't feel the exasperation? The magic of QE at this point is over. QE is a motivation more than anything tangible and the magic is over.  Look for lower lows and lower highs at this point.   We had a little support around 13,500 and that I suspect is our next stop.  Yes we have seen this market throttled up by the FED but it will only be usefull until folks see it as a given, and that is now past.  The only really move to correct the "profit" requirement is a change in trade policy.  Where we are headed now is deep deep into nowhere.  This money for QE is all continued waste at this point.  It is being handed out just like the free cell phones.  The only further policy extention is to pay folks to take it.  Let's save the future and change trade policy to save anything that can be recognized as societal fairness.  We need to create consumers now.  We already have wages slashed and controlled. This is so well overdone we now will lose our consumers and have so few soon to buy anything profits will suffer deflationary pressures.  JMHO 
Jul 8, 2013 1:56PM
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QE is the only source of power for this market right now. The media is cooperating to try and paint a rosy picture for John and Jane Doe to cover the market retreat when QE is gone. I don't believe they will be successful on that con game.
Jul 8, 2013 2:07PM
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. Congress no longer represents the American people.  To be elected to congress cost large amounts of money and vested interests supply this money, congressman are bought and paid for before they ever take office. Also, it is estimated that for every $1 spent by lobbyists there is a $2200 return on that dollar. The money is just too big. If you look at who benefits from our current economic policy it is the big banks, large corporations and the federal government and the vested interests they protect. Americans we are going to have to face this reality and deal with it. Sorry about that!! The big question is do we have what it takes to deal with this reality????

Jul 8, 2013 1:47PM
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Sorry boys high energy prices, like high inflation could very well hurt our economy. The consumer purchasing power is still weak. If Obama doesn't want to be a dead duck president he had better get off energies case. 2014 election are on the way!!!
Jul 8, 2013 2:49PM
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QE is hardly over. What goes in has to come out or it rots us all. READ, please. Andrew Dickson White's book: Fiat Money Inflation in France. The fiat printed currency didn't destroy the economy, it prevented one from existing. Just like Bernanke is doing to us now.
Jul 8, 2013 5:28PM
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Ooooohh, what was that? Someone say something about Casinos?? oooohhhh !!
Jul 8, 2013 5:27PM
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Market (DOW) up about 90...

Most of our Energy stocks were up about 1.5-2.0%..

Yeah, we likey very much.

Jul 8, 2013 5:23PM
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Ahhh, the Sweet smell of recovery....Why not jack the shidt out of energy costs..??

Yeah, why not..

Jul 8, 2013 1:59PM
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It`s all about earnings.That`s the real reason the market is up 90% with Obama.The

Obama haters love to dream up other reasons.

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