Energy has been the clear leader in 2022. The sector posted a record-setting start to the year, even as the broader market sold off.
Whether it's our Inside Scoop universe or any other scan, we’ve gotten used to leaning on the strongest stocks in the oil field for long exposure.
As participation narrowed for US stocks throughout the second quarter, we cautioned that energy had become an easy target and was vulnerable to catching lower with the broader market.
About a month ago, that happened as bears finally came for energy. In a matter of weeks, much of this year’s progress came undone, and so did a handful of our stops.
While there has certainly been short-term technical damage, the primary trends are intact. And while these stocks have been hit hard over the trailing month, there's little evidence that they're done being leaders over longer time frames.
Once this corrective action passes, we expect energy stocks to resume higher and offer plenty of bullish opportunities. But in the meantime, they are susceptible to deeper drawdowns and increased selling pressure.
From a technical perspective, this rocky market is offering us limited opportunities on the long side.
While we continue to approach most equities with caution, insiders are buying into the volatility aggressively. According to data from Whalewisdom, the ratio of insider buys versus sales hasn’t been this high since early 2020.
While this is bullish, we still aren’t seeing much in terms of price confirmation.
Something we are seeing is plenty of options to choose from on our Inside Scoop list.
But while insiders are buying hand over first, the current environment warrants us to be far more selective. We only want to be in those setups that are offering the best risk/reward opportunities.
This week, we have our eyes on a mid-cap materials name that is coiling just beneath all-time highs.
While we managed to string together a handful of up-days at the end of last week, markets have been selling off aggressively since April. Sellers remain in full control as the list of indexes resolving lower from distribution patterns continues to grow.
Finding favorable long setups in this tape hasn’t been easy. And because Inside Scoop is a “long-only” scan, there’s been little for us to do in the current environment.
Despite this, insiders have been very active in recent weeks as we continue to see more and more come out to buy the dip.
Many of the names seeing insider interest are in severe downtrends and have already endured significant technical damage.
With that said, there are still long opportunities. We just have to look a little harder, and get a bit more creative.
Today, we have a long-term base breakout as well as a short-term mean-reversion setup. While these are very different, both offer significant upside potential with limited risk.