Trader’s Narrative

It was only a little while ago that I pointed to the energy sector’s bullish percent (BP%) number and suggested that it meant we had a tradeable bottom.

We did get a bounce but it was quite feeble and lasted for only two weeks before prices fell again. I just noticed now that the energy sector’s BP% is 12.5 - a multi-year low.

What does this mean? For starters, BP% can go to zero so it doesn’t have to turn up here just because we think the number is low. At each of the previous low points (green circles above) the energy sector had put in an intermediate bottom. But something has changed this time I suspect.

For one, this time around the sector was unable to mount a meaningful rally from deep oversold levels as it had in the past. Also it has now dropped below its (flattening) long term moving average - something which it had not done since the birth of the bull in May 2003. And finally, BP% has fallen to levels that it has not seen in years. Clearly the energy bull is showing fatigue.

We may very well see a rally from such deep oversold levels - especially since oil has not fallen as much as the energy stocks - but before being convinced of this, I would need to see some sign that buyers are stepping in. For example, seeing the BP% turn up would be a good start.