The Energy Rally Ain’t Over

One of the hard parts about writing an investing blog is that I can’t run from my mistakes. When I’m wrong, it’s there for the whole world to see.
Lately, I’ve been completely and totally wrong on energy stocks. I said that I thought the run-up in energy stocks had run its course. Nope. Yesterday, oil cracked $66 a barrel, and the Dow Energy Sector hit a new high (see the chart below). Poor Frontier Airlines (FRNT) fell all the way to $7 a share (higher fuel costs hit the airlines the most).
I haven’t changed my outlook. I still don’t like the sector. Maybe this is what the technicians call a “double top.” I don’t know, but I simply don’t see how energy stocks can maintain their valuations. Take away energy and tech, and this is still a pretty quiet market.
I’d have a lot more confidence in this market if it were being led by “foundation sectors,” like financials, industrials and consumer stocks. Everyone got excited about the market’s upturn at the start of the year, but it seemed far too narrow for my taste.
Today may be the first of a reckoning of sorts. Both Yahoo (YHOO) and Intel (INTC) are down about 11% due to poor earnings reports. Google (GOOG) is back down to “only” $450 a share. All eyes are on Apple (AAPL), which reports after the close. The techs are taking a beating today, and the Nasdaq is down about twice that of the S&P 500.
Right now, the Buy List is down about 0.15% while the S&P 500 is off 0.68%. Anytime energy stocks get hit, our Buy List will beat the market. For the year, the S&P 500 is beating us: 2.1% to 1.4%.
Tomorrow, Harley (HDI) and UnitedHealth (UNH) weill report before the bell. I’m not so concerned about UnitedHealth. You can set your watch to their earnings. It’ll either be 66 or 67 cents. I don’t they’ll fall outside that range.
But Harley is a little more difficult. The current estimate is for 81 cents a share. That strikes me as a bit too low, but I can’t be sure. Options buyers have been loading up on puts to protect themselves from a possible sell-off. The stock dropped about 17% after its earnings report last April. I think the market is being overly cautious but we’ll know more tomorrow.
Here’s a chart of the Dow Energy Sector for the past few months:

Posted by Eddy Elfenbein on January 18th, 2006 at 12:47 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.