The energy sector was the top performer for the stock market in 2022, which perhaps also helped to protect the draw down of the S&P 500 (down around 19%) vs the Nasdaq composite (down more than 30%). The relative one-year performance of the energy sector was 31%, while the other sectors all gave negative returns in 2022, with technology, consumer discretionary and communication services suffering a drawdown of more than 35%.
Sector performance 6 months and one year
US Oil headed for $65?
US Oil Daily
Interestingly, the price of US Oil has been on a constant downtrend since its peak in June. In July and August, it failed to break above the 50 daily moving average, while in early October and November, it created a double top at $92, trapping any bulls on oil, before breaking below the 50 daily moving average once again. At the start of the first day of trade on January 3 this year, it rejected the 50 daily moving average again. Fears of a global recession has created demand destruction, and from a Bloomberg recent study, the chance of a recession in the next six months is 44%, while the chance of a recession in the next twelve months is 100%. Any failure to defend $70 per barrel could see the price of oil testing $65. The would be good news for those who drive, and also for the greater economy as everything is linked to oil from materials and processing to food prices.
So will Buffett sell OXY?
Occidental Petroleum made lots of news in 2022 when Warren Buffett gradually increased his stake in the petroleum company. Buffett is the buy and hold forever kind of investor, so naturally, whatever Buffett buys, people follow. Except when he sells, you wouldn’t know until it is time to file their quarterly holdings, typically within 45 days after the end of the calendar quarter.
OXY daily chart
OXY weekly chart
Interestingly, from the daily chart of OXY, it has peaked at $76 per share and always been sold off since. In the last half of December, the stock has failed to break above the 200 daily moving average, while the 50 daily moving average and 150 moving average is starting to point downwards. Technically, $56 looks like a good support, but a failure to hold this could see it retest $44.
Looking at the weekly chart of OXY, it can be seen that 50 weekly moving average is the supported zone for long term investors. However this week it has broken below that 50 weekly moving average, although there are still 2 more trading days in this year’s first trading week. A failure to close above the 50 weekly moving average would likely trigger it’s time to get out and collect your profits.
Is risk on back for 2023?
XLY/XLP ratio
Looking at the chart of XLY vs XLP, which compares consumer discretionary to consumer staples, which also indicates the sentiment of risk on vs risk off in the markets, the trend has been downhill for the last quarter of 2022. These levels of around 1.75 is the close to the lows back in March 2020. Last weeks green ice cream bar, although small could likely indicate perhaps rotation is back into risk on.
Hang Seng Index back in bull market
Hang Seng Index above 200 daily MA
The Hang Seng Index peaked in mid-February 2021, and was in a bear market for almost close to 20 months, until the bottom at the end of October 2022, after China’s party congress in October last year. The week after the CCP’s congress, Chinese ADRs sold off and many investors were fearful that it is the end of Chinese stocks. And then it produced a strong V-shaped recovery, and if you bought into names like Alibaba, Baidu, Bilibili or Pinduoduo in October, I guess you would be a very happy person today. In fact, the Hang Seng Index has gained 43% since the bottom at the end of October!
Considering that Chinese stocks peaked roughly 10 months before the US stock market peaked, it is likely to be a leading indicator for the US stock market this year. Unfortunately, the Federal Reserve is hard on their message that they will continue to raise interest rates this year to their median of 5.1%, and analysts are predicting that eventually this will cause a recession. This months earnings for the last quarter of 2022 will be interesting, as to how many companies will beat earnings estimates, that have constantly seen downward revisions in earnings estimates so far. If you are a long term investor of US stocks, there is roughly six months of “discounts” in the market until June, and remember to be greedy when others are fearful.
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