The VDE ETF: A Bearish Short-Term Trend Turned Bullish

seekingalpha11-20

Vanguard Energy Index Fund ETF Shares has turned bullish, driven by a shift in U.S. energy policy favoring increased oil and gas production.The VDE ETF’s holdings in leading integrated oil companies ...

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Valerie Loiseleux  In markets across all asset classes, the trend is always your best friend. However, choosing which trend to watch and follow can present significant challenges. The Vanguard Energy Index Fund ETF Shares (NYSEARCA:VDE) product owns shares in the leading traditional U.S. energy companies: Top Holdings of the VDE ETF Product (Seeking Alpha) The chart highlights the 36% exposure to the two leading U.S. integrated oil companies, Exxon Mobil (XOM) and Chevron (CVX). The top oil companies’ shares tend to rise and fall with crude oil prices (CO1:COM, CL1:COM), which have been in a $65.27 to $78.48 range since mid-August 2024. Crude oil was just below the $70 level on November 19, in the middle of the trading band. NYMEX crude oil futures reached the high this year when the nearby NYMEX futures contract hit $87.67 per barrel in April 2024. In 2024, VDE shares have traded in a range of $110.51 to $137.92. At the $133.26 level, the ETFs’ shares are not far from the top of the range. Meanwhile, VDE’s short-term trend has turned from bearish to bullish, and its path of the least resistance since the 2020 lows remains bullish. VDE had made lower highs and lower lows since April 2024 until November 6 The VDE ETF reached a $137.92 high on April 12 before moving into a bearish trading pattern through early November 2024. Daily Chart of the VDE ETF Product (Barchart) The daily chart from the beginning of 2024 shows a pattern of lower highs and lower lows that ended on November 6, 2024. On November 6, the VDE ETF eclipsed the lower high and technical resistance level of October 7 at $131.45, and it has risen to a $134.25 high, ending the bearish path of least resistance that had been in place over the past seven months. The short-term trend turned bullish when VDE shares gapped higher on November 6. VDE remains in a bullish trend since the 2020 low While VDE’s path of least resistance was lower from April through early November 2024, the long-term chart remained in a bullish trend. Monthly Chart of the VDE ETF Product (Barchart) The monthly chart illustrates the pattern of higher lows and higher highs, taking VDE shares nearly 360% higher from the March 2020 low of $30.03 to the April 2024 high of $137.92. VDE has not violated the bullish trend since 2020 despite the bearish price action from April through early November 2024. The U.S. election and the diversified traditional energy ETF The November 5 U.S. election was a watershed event for U.S. energy policy. The Biden administration had embraced climate change initiatives over the past years, supporting alternative and renewable energy sources while inhibiting the production and consumption of crude oil and other fossil fuels. On the campaign trail, President-elect Donald Trump pledged to return the U.S. to a “drill-baby-drill” and “frack-baby-frack” policy to achieve energy independence from OPEC+. He intends to reduce consumer energy prices and increase exports and traditional energy revenues to reduce inflation and the U.S. deficit. In last week’s acceptance speech, the President-elect told the world, “Promises made, promises kept.” The Trump administration will reverse the Biden administration’s energy policies, which could substantially increase U.S. crude oil and natural gas production. A return to traditional energy production could be a mixed blessing for the oil and gas markets and the companies that explore, produce, process, and serve energy commodities. The bullish case for owning VDE At $133.26 per share, the highly liquid VDE ETF had $9.45 billion in assets under management. VDE trades an average of nearly 337,000 shares daily and charges a 0.10% management fee. The $4.02 dividend translates to a 3.06% yield. The shift in U.S. energy policy will lead to increased oil and gas output, independence from OPEC+, and rising exports, which presents a mixed picture for integrated energy companies. The bullish case includes:  Increasing production should support earnings. VDE’s holdings include the leading integrated oil companies, refiners, and oil services companies. VDE has been in a bullish trend since March 2020, and the trend is always a trader or investor’s best friend. VDE’s short-term trend turned higher after the November 5 election, moving above the first technical resistance level and negating the bearish trend since April 2024. The incoming administration, led by President Trump, has told markets that it will tap the U.S.’s rich reserves over the coming four years, leading to increased business for the traditional energy sector. Tax policy will favor domestic oil producers, and the administration will favor a “Made in America” approach. Extracting crude oil and natural gas from reserves within the U.S. borders makes the energy commodities “Made in America.”  The energy stocks exploded higher after the former President’s landslide victory. With a majority in the Senate and a slim majority in the House of Representatives, the administration will face few headwinds in executing its energy policy initiatives. The bearish case for the energy ETF One overwhelming factor could derail energy stocks over the coming months and years. Crude oil stocks tend to move higher and lower with petroleum futures prices. President Trump has pledged to push gasoline prices at the pump back to the $1.50 per gallon level or lower. At that level, crude oil prices would be below $50 per barrel or even as low as the $40 per barrel level. I believe the dramatic shift in U.S. energy policy is bearish for crude oil futures, and they will make lower highs and lower lows when the administration takes over in early 2025. President-elect Trump’s first term was from January 2017 through December 2020. Over the period, the continuous NYMEX crude oil futures traded from a pandemic-inspired low below zero to the October 2018 $76.90 high. During President Biden’s term, the range was from $63.57 to $130.50 per barrel. “Drill-baby-drill” will likely lift U.S. crude oil output significantly from the current 13.5 million barrel per day level, which is likely bearish for petroleum and oil product prices. Lower oil prices could weigh on oil-related stocks and the VDE ETF product. Meanwhile, the caveats include the turmoil in the Middle East and tensions in the geopolitical landscape. Moreover, a recovery in China’s economy could increase the demand for crude oil, which is not bearish for prices.   VDE Seeking Alpha Factor Grades (Seeking Alpha) Seeking Alpha’s ETF Grades for VDE are primarily favorable. The low 0.10% expense ratio results in an A rating, while the highly liquid ETF receives an A in liquidity. The A in momentum is a function of the recent rally, while the B+ in dividends reflects the 3% yield. A D- in risk is appropriate, as the potential for lower oil prices over the coming months and years could weigh on oil-related shares.  I rate VDE a hold in the current environment. While I am increasingly bearish on the oil price, earnings for U.S. oil companies and favorable tax policy could offset the impact of falling oil prices.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484976872"}