Energy stocks may provide a leading indication of whether oil prices have hit bottom and are due for a strong rebound, said David Rosenberg, chief strategist at Gluskin Sheff & Associates Inc.
He said oil’s 60 percent slump since last summer resembles the plunge in the mid-1980s, which set the stage for strong gains in West Texas Intermediate crude prices and energy stocks.
“Six months after the low in the oil price in 1986, WTI had rebounded 45 percent. S&P energy stocks rallied 27 percent in six months and 50 percent in the ensuring year,” he said in a February 5 report obtained by MoneyNews. “So you can see why picking the bottom can be very beneficial for your wealth.”
In 1986, the S&P 500 Energy Index hit a bottom almost two months before oil reached a low of $10.40 a barrel. This year, energy stocks re-tested a December bottom on January 15, two weeks before oil reached a low of $44.45 a barrel.
Investors need to look for two key indications that oil prices and energy stocks are due for a rebound, Rosenberg said.
“Will the $44.45 per barrel low on January 29 hold in the retest phase?” he said. “Did the 542.06 trough in the S&P Energy index exactly two weeks earlier represent the same leading qualities that it did on February 5, 1986?”
The rebound in oil to more than $52 a barrel this may not last, said John Kilduff, founding partner of Again Capital.
"I still believe we're going to go to that $30 to $33 area, which is the low point from the financial crisis in 2008, 2009," he told CNBC.
"What you saw over the past several days was technical in nature, a short squeeze. This volatility is a little crazy, and I think that $30 is a downside target for technicians that are in this market."
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