Well, the frothy move in crude is finally perking up some of the Canadian Energy large cap companies.
Lets start at the top.
Crude has clearly broken out in a moonshot. This would appear to be caused by stops being hit and investors forced to buy as the price moves against their short position. Resistance at $109 is the next hurdle. $WTIC has broken out of the massive 5 year pennant (not shown) . This break to the upside has to be respected. It is very important. The horizontal resistance at $109 and above that at $114 will be considerable to overcome. However, the last 3 years of this sideways pennant has controlled prices and clearly we appear to be breaking these major trendline resistance levels coming into the seasonally strong part of the oil price. A move back below $98 would be significant as it would confirm no support at these higher levels.
One of Calgary's oil company presidents said ' tell me what new car registrations are doing, and that tells me the most likely direction for crude'. Currently, Ford put out some great numbers for US car sales.
Lets look at the Canadian large cap stocks in alphabetical order.
Crescent Point pays a big monthly dividend but it is the weakest here. Notice it is trying to bounce off a triple bottom. It is just below the 10 week moving average (10 WMA). It is also just at the green, downtrending resistance line. The confluence of the 10 WMA and the downtrending line add difficulty to pushing through. A break above those will be very bullish with the next resistance at the top of the channel marked with the blue dotted horizontal trendline. If we wanted to, we could also say the CPG trades in a two year range between $35 and $42.5. Currently that would give a 20% upside to the top of that range.
Cenovus is very interesting here. Without going too fundamentally (argghhh!) they have a pretty clear growth strategy to double production over the next 4 years. Their costs at their two big plays are sub $50/ barrel, so that gives some big upside at $105 oil. You can see it tested the 2011 low in the 2nd quarter and that $30 level is a pretty compelling investment level. It took out the May highs yesterday so a series of higher lows and higher highs has officially started. On a weekly line chart it would have to close Friday above the May high of $31.50 for this to hold true.
Canadian Natural spent a lot of 2012 testing that $27.50 level. In 2013, it has moved up making higher lows around $30. Recently, it made a slightly lower low than early April, taking out most of the stops and has since soared from there. It is taking out the May highs. It is above the 10 WMA. It appears to have broken above the downtrending green line, so it looks like the target would be at least the top of the channel marked by the horizontal blue line.
Husky has been in a sideways channel since the beginning of the year. With a close stop just under the $27.50 level, even a move to the top of the channel is a 10% move. Looking farther left, you can see the $27.50 level was resistance in May 2011 and looks to be building a solid support level at $27.50 now. It is still below the 10 WMA, but you'll notice the price action is in the top right corner of the price box. That is leadership relative to the rest of these stocks.
Suncor merged with PetroCanada and changed from being a major oilsands player to a massive company with global operations including one of Canada's largest retail networks. Like Husky, the integrated model can help control declining crude margins by making it on the refinery side. Unfortunately, the Suncor stock has not behaved anywhere near as well as Husky over the past year. While this company has plenty of stature and no shortage of good leadership, the stock seems channel bound between $27.50 and $35 for the last 2 years. The rising lows are nice to see. With a little closeup inspection, the recent high took out the marginal high of March and we have built a higher high and now a higher low. That is productive. What we would like to see is a move above blue horizontal resistance. That would get investors marching into Suncor. One to watch as Suncor and Petro Canada merged March 23, 2009 which was only 2 weeks after the stock market low! In a rising crude oil market, the full power of the new company should be able to show up on the chart soon. Under new leadership as Rick George resigned last year, Suncor's chart could be one of the most interesting to watch. It is Canada's largest company by revenue and obviously Canada's largest oil company. The technicians poem goes " the wider the base, the higher the space." A two year base after the $45 high hit in 2011 makes for some serious upside space. That would be almost 50% from here to get to 2011 highs. At the time of writing, Suncor is above the 40 WMA at 31.84 (not shown). Not a bad place to expect institutional buying.
Lastly, let's look at the sector. The $SPTEN is Canada's energy sector. It is currently above the 10 WMA and looks to be breaking out above the downward trendline. Excellent! It needs to get above March's reading of 260 to have higher lows and higher highs on a weekly chart.
It all looks bullish to me. New breakouts can fail. I find the global situation a catastrophe. If this crude breakout holds, it could be the most important trade of the year to get the $TSX back above the 40 WMA and start a new uptrend. That is getting ahead of ourselves, but a breakout in oil is definitely bullish for Canada's index. At some point, higher lows and higher highs mark a trend change. That is what we are looking for and we are seeing it on some large cap stocks here.
Good Trading,
Greg Schnell, CMT
