Bulletin
Investor Alert
×

Need to Know

July 18, 2019, 9:33 a.m. EDT

Energy shares could double by 2020, so buy now, says contrarian investor

Critical information for the U.S. trading day

By Barbara Kollmeyer, MarketWatch


Getty Images
Oil’s the place to be, according to one contrarian.

Investors are braced for a third day of losses in a row. We are looking at you, Netflix (NAS:NFLX)  .

Disappointing results from the popular video streamer have scattered investors and dented the mood on Wall Street, even if some analysts are unfazed. To be sure Wall Street puts a lot of faith in technology and internet names, and Netflix has delivered some wild returns over the years. We’ll see if some tech faith can be restored later when Microsoft reports. But for now, it could be rough.

Opinion: With Netflix stock upside down, ‘Stranger Things’ becomes its most important series ever

And maybe look elsewhere, as our call of the day suggests, with a strong recommendation to start buying energy shares – now.

“Of all the buying opportunities since the incredible bargains of the first several weeks of 2016, buying energy shares near current levels is one of the most important and reliable ones,” Steven Jon Kaplan of the True Contrarian blog and newsletter told subscribers.

The widely followed Kaplan believes energy shares could double or more by summer 2020 if not sooner. His newsletter has been around since 1996 and he’s been trading since 1981.

He’s excited by the “intensity of insider buying” for U.S.-listed energy names over the past week, which he says is nearing all-time record highs. That refers to share buying by company executives and directors, which is a great indicator of the health of a business because no-one knows the firms better. Some believe that if those inside the company are buying, then that’s a green flag for everyone else.

As well, Kaplan notes that such insider activity in the past for oil shares has been followed by “dramatic outperformance” for energy shares.

How to play it? He suggests buying the SPDR S&P Oil & Gas Equipment & Services exchange traded fund (PSE:XES)  , FCG First Trust Natural Gas ETF (PSE:FCG)   and VanEck Vectors Oil Services ETF (PSE:OIH)  .

He says those with a Fidelity account should buy the iShares U.S. Oil Equipment & Services ETF (PSE:IEZ)   or Fidelity MSCI Energy Index (PSE:FENY)  rather than XES. For Schwab or ETrade trade clients, he suggests the Invesco S&P 500 Equal Weight Energy ETF (PSE:RYE)  , as it’s commission free.

Read: Oil stocks have lagged the S&P 500 in 2019 but Wall Street loves them

The market

The Dow (DOW:DJIA)  , S&P (S&P:SPX)   and Nasdaq (AMERICAN:COMP)  are lower as trading kicks off.

Gold is up, while oil and the dollar (IFUS:DXY) are softer.

Read: Bridgewater’s Ray Dalio says gold is a good ‘portfolio diversifier’

Europe stocks (STOXX:XX:SXXP) are down, while Asia (DJX:XX:ADOW) had a bumpy session.

The chart

Here’s another chart of the day that speaks of a resilient S&P 500, this time from Adam Kobeissi of The Kobeissi Letter . He sees a “near-term uptrend that currently stands at around 3,000 and should keep driving the markets higher.

Since the S&P has broken above 2,800, the Bollinger Band, which is a technical tool used to measure overbought or oversold conditions, has been signalling the former, and the Relative Strength Index (RSI) has risen above 70 multiple times.

“This is supposed to signal severe overbought conditions and ultimately a pullback,” Kobeissi said in an email. “However, markets are ignoring this and pullbacks are minimal and used as buying opportunities.”

Earnings

Healthcare group UnitedHealth (NYS:UNH) and multinational Honeywell (NYS:HON) have each reported upbeat results. Morgan Stanley (NYS:MS) shares are now lower even after profit and revenue beats. It’s all eyes on Microsoft (NAS:MSFT)  results after the bell (see preview).

Read: Videogame-streamer marks largest U.S. IPO by a Chinese company for 2019

Outside of Netflix, reporting late Thursday was tech giant IBM (NYS:IBM)  disappointed with results and shares are down. EBay  (NAS:EBAY) (NAS:EBAY) shares are up after a forecast beat.

The buzz

Sen. Chuck Schumer has asked the FBI to probe whether the popular FaceApp software has Kremlin ties. Meanwhile are users ignoring the security risks of the how-you-age app?

Weekly jobless claims inched up, while the Philly Fed index rebounded to the highest level in July. Leading indicators are still to come. We’ll also hear from Atlanta Fed Raphael Bostic and New York Fed President John Williams.

Random

Several dead after arson attack at Japan animation studio

Freshly squeezed grasshopper juice anyone?

West Palm Beach puts the “Baby Shark” kids song on loop to keep the homeless away

Second-hand clothes sales on eBay nets this woman $1.2 million

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

Follow MarketWatch on Twitter , Instagram , Facebook.

Link to MarketWatch's Slice.