By Doug Busch
Global energy markets are in focus again. While investors crowd into familiar North American names, some of the most compelling upside may lie further south. South American energy companies are quietly strengthening balance sheets and expanding production. With discounted valuations, rising output, and leverage to global pricing, these underappreciated players offer a combination of growth and cash flow that the broader market has not yet fully priced in. Think Petrobras and Ecopetrol.
Stepping back to the broader energy landscape, the State Street Energy Select Sector SPDR Fund led all 11 major S&P sectors last week, advancing 2.5%. Healthcare and real estate followed, hinting at a modest defensive tilt among investors. Even so, energy continues to stand out for its resilience. Over the past year, XLE has been the second-best performing sector, rallying 45% and trailing only technology. With relative strength improving, the group appears well positioned to extend its leadership into 2026.
With that backdrop, it's worth turning our attention to two of South America's most influential energy producers.
Petrobras, Brazil's state-controlled energy giant, is up 57% over the last year and pays a dividend yield of 6.5%. It is now 20% below its annual peak, which it reached just one month ago. The stock is on a current five-week losing streak, its first since 2024, creating a compelling long opportunity.
On the daily chart over the past year, a bearish RSI divergence emerged in late January, with momentum peaking near an overheated 80. Price continued to rise as RSI steadily dropped. While the stock demonstrated notable relative strength versus energy peers in the first quarter as seen on the ratio chart against the XLE, that outperformance has since faded as momentum cooled.
Technically, the advance began with a bullish island reversal marked by a gap higher on Dec. 30, 2025. Shares cleared a $13.11 double-bottom pivot on January 21, followed by the formation of a bull flag. A breakout above the $16 trigger on February 21 sparked a sharp rally, which ultimately stalled after a bearish island reversal on April 14, accompanied by a 4% gap lower. A doji candle on May 6 signaled indecision and preceded the pullback to current levels.
From here, a retest of the prior bull flag breakout near $17 could offer a favorable entry point. The stock could reach $21 by the third quarter, 24% above current prices. Remain bullish above $15.
Petrobras was trading around $17.75 Monday.
Ecopetrol, Colombia's largest energy company, has been a standout performer, rising 71% over the past year while paying a 4.2% dividend yield. The stock currently trades 7% below its 52-week high. Notably, its trend has been remarkably consistent; the last weekly losing streak of more than two consecutive weeks occurred 10 months ago.
The stock has outperformed energy peers since early March, as reflected in its relative strength versus the XLE, though momentum has shown signs of fatigue with bearish RSI divergence emerging as early as January. Despite this, the name has a strong history of successful double-bottom breakouts, including moves above the $10.32 pivot on Jan. 5, the $13.02 trigger on March 11, and most recently the $14.74 on May 26, the latter accompanied by a 7% rally on more than double average daily volume.
Look to enter at $15, which would fill the gap from May 29. The stock could target $19 by year-end, implying 24% upside from current levels. Remain bullish above $14.
Ecopetrol was trading around $15.25 Monday.
Doug Busch is the senior technical analyst at Barron's Investor Circle . His technical view is added to stock picks, including those published exclusively for Investor Circle readers. A glossary of technical terms is updated regularly with new entries.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 08, 2026 14:50 ET (18:50 GMT)
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