Natural resource stocks don’t look so good now
The number of natural resource stocks on the IBD 50 list of growth stocks has fallen to less than 10 after dominating the list just a few weeks ago. The evaporation of natural resource names from the list comes as fears of a recession mount. And that lowers earnings expectations for these recent top brass. Most have crossed technical lines of support.
And most have relative strength lines that exceed recent highs. This all adds up to a sign that it’s time to reassess these stocks’ place on the watchlists as the stock market works through which sectors will ultimately excel in the next uptrend.
Stocks of natural resources below the line
Among the coal stocks, Arch Resources (CAMBER), Alpha metallurgical resources (RAM) and warrior met coal (HCC) all fell below their 50-day moving averages. Normally you want to see falling stocks find support at the line. Falling below is a bearish sign. And the breech raises questions about how long it will take for Arch and Alpha to return to the new high levels they set in June. Warrior’s case might be a little darker. It peaked in March, but is testing support at its 200-day moving average, below its 50-day line.
Basically, coal stocks still look decent now. Their revenues rebounded from the Covid-ridden 2020 declines. Wall Street analysts expect all three to see their revenues more than double this year. It remains to be seen whether the Federal Reserve’s fight against inflation pushes the economy into recession. This would likely result in lower demand for natural resources.
Fertilizer stocks also failed to hold their 50-day lines. Based in Chile Quimica & Minera Company (SQM) had risen 27% into take-profit territory after breaking above a consolidation buy point of 90.97 on May 18, according to chart analysis by MarketSmith. It has now made the round trip of all that gain and is down 28% from its peak of 115.76 on May 27.
Based in Deerfield, Illinois CF Industries (CF) speaks to why earnings growth is more important when deciding whether to buy a stock, but the performance of the stock price takes precedence when deciding whether to hold or sale. The nitrogen-based fertilizer maker has a perfect EPS rating of 99, with analysts predicting a 192% increase in profits this year, according to IBD Stock Checkup. But its share price, now well below its 50-day line and flirting with its 200-day line as it trends lower, suggests investors are growing increasingly worried about the outlook for overall earnings. line.
Weakening oil and gas leaders
Among oil stocks, western oil (OXY), New Fortress Energy (ENF) and Cenovus Energy (CVE) are finding resistance at their 50-day lines after recent dips below this level. Viper Energy Partners (VNOM) is trying to hold the 200 day line.
Crude oil prices, as measured by West Texas mid-market contracts traded on Nymex, rose about 3% to 109.10 on Friday. But they are well down from $122.11 on June 8, according to WSJ Markets.
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