Feeling Positive Energy

May 19, 2025

I’m liking energy more and more with each passing day.

And the bull thesis couldn’t be simpler.

It’s a raging bull market for stocks around the world. It’s being led by offense.

Internals continue to improve.

And like any bull cycle, as time passes and the market grinds higher, it drags a growing list of non-performers higher with it.

Some call it rotation, but it’s really just a broadening of participation over longer timeframes.

What I mean is that more groups join the party as the bull market progresses. The ones that had previously not been working, start working. We see it every time.

In bull markets, the laggards catch up to the leaders. And not vice versa.

And it’s happening now, isn’t it?

Look at international markets. Even the worst-performing regions, like Southeast Asia and South America, are now working. They’re actually outperforming in the short-term.

And in the US, look at old laggards like small-caps, speculative growth, and transports. They are working too, and putting in some catch-up moves to the broader market.

So, I guess my question is… why not energy?

Why shouldn’t this base in the Large Cap Energy Sector SPDR $XLE resolve to the upside?

We’ve already seen plenty of similar bases erupt higher this cycle.

In assets and indexes far and wide, from MSCI EAFE $EFA, to Financials $XLF, and even Gold $GLD.

I think Energy will do the same thing.

And why shouldn’t that move start right here and right now?

Both energy stocks and energy futures are digging in at support and failing tops.

And we’re seeing a similar pattern on a relative basis. Here’s Equal Weight Energy vs the Equal Weight S&P 500:

While price is making new lows, we’re not getting any follow-through reaction at the breakdown level of this top. Meanwhile, momentum is sporting a bullish divergence. This one has a scoop ‘n score written all over it.

I’m looking for energy to dig in here and show some new leadership off these key levels.

Volatility has been spiking in both directions as well, which is common at inflection points. For example, XLE had both its best and worst single-day performances since 2020 last month.

I think a big move is brewing, and we want to position ourselves for it.

The following are our favorite ideas for expressing a bullish thesis on energy right now. The trades represent a diverse mix of exposure throughout the entire oil & gas industry and all its subsectors.

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First up is the multinational integrated oil & gas blue-chip, Chevron $CVX:

CVX just bounced off the VWAP from its 2020 low and the lower rail of its two-year range—this is a textbook confluence of support. We even have the prior-cycle highs from 2018 coming into play here.

To get one of the largest energy companies in the world at such a major polarity zone is a gift, in my opinion.

Relative strength versus XLE sits on a decade-long support zone, hinting at a turn.

We’re not trading a breakout here, just the range. As long as CVX is above 132, we’re long, targeting 186 back at the range highs. We can reassess once we’re there.

I really like the dividend here, too. It’s almost 5%. What a deal.

Next, we have an energy infrastructure leader, Williams Companies $WMB. This one pays a 3.40% yield:

WMB has carved out a massive decade-long base. For the past 6 months, the midstream giant has been coiling in a tight range below all-time highs, looking poised to explode out of this pattern.

On a relative basis, WMB is pressing against the lip of a decade-long cup-and-handle. We can use a breakout in the relative trend as confirmation.

A weekly close above 60 will be our trigger to enter, as it should set the stage for the next leg up.

We’re buyers of WMB on strength above 60 with a target of 92.

Now for a small-cap natural gas play. This is Comstock Resources $CRK:

CRK is resolving a monster decade-long base as it reclaims its all-time-high VWAP. This reversal is in the books, and the bulls are firmly back in control over longer timeframes.

As for the relative trend, CRK is completing a similar pattern and breaking out of an equally massive base compared to its energy sector peers.

This stock is levered to the price of natural gas, so it tends to run fast once it gets going.

As long as CRK remains above 19, we want to be buyers targeting 64.

Our fourth setup today is Kodiak Gas Services $KGS:

Since its IPO around two years ago, KGS has done nothing but create shareholder value. The strength and leadership in KGS show no signs of waning. After a shakeout below the 38.2% fib from its entire run, the stock is looking to scoop higher.

On a relative basis, KGS has strung together nothing but higher highs and higher lows versus XLE.

Our trigger level is 37, which also represents the VWAP anchored to the all-time highs. A close above will signal that buyers are back in control, and the path of least resistance is higher.

We’re long KGS above 37 with a target of 51.

Our next setup is the large-cap exploration & production company, Hess Corporation $HES:

HES spent the past two and a half years trading in a tight range after breaking out of a massive financial crisis base. Time after time, bears have failed to break it back into its old range. I think there’s only one direction left for HES to go, and that’s up.

On a relative basis, HES is in a similar position vs the broader energy sector. This multi-decade base appears to have completed, suggesting more leadership to come over the long run.

If we’re above 128, we’re long HES, targeting 188.

Next we have the oil & gas royalty company, Landbridge $LB:

LB just resolved a textbook continuation pattern and is poised to continue its advance. The breakout above the multi-month ceiling around 79 is our signal that bulls have resumed their unrelenting bid.

On a relative basis, LB has been printing nothing but higher highs and higher lows vs the broader energy space. We want to make the bet that this leadership continues.

If we’re above 79, we want to own LB, with a measured move target of 105.

Last but not least, here’s exploration company Gulfport Energy $GPOR, which has exposure to both natural gas and crude oil:

Gulfport Energy has been stair-stepping higher after breaking out of its post-IPO base two years ago. We're looking to get long as it attempts to break out of a multi-month tactical base near all-time highs.

On a relative basis, it's already printing fresh all-time highs vs the energy sector, a sign of strength and leadership that hints at a breakout on absolute terms.

Above 185, and we’re buyers of GPOR with a target of 262.

That’s it. This is our playbook to profit from a rebound in energy.

If these trades start working and energy does what we think it’s going to do, we’ll have more long ideas soon.

Steve