After oil’s best month ever, these are the key levels to watch

What a difference a month makes.

West Texas Intermediate crude oil rallied nearly 90% in May, its best month ever. It was a bounce back from April losses.

“When I look at the crude oil price, I would say when you look at that chart, we’re coming right up into the downtrend resistance line and a close above about $33 and change leaves the next resistance at $42,” said Craig Johnson, chief market technician at Piper Sandler, on CNBC’s “Trading Nation” on Friday.

Crude oil closed above $35 on Friday afternoon. Resistance at $42 implies further upside of 20%.

Energy stocks, however, aren’t keeping up with those gains. The XLE energy ETF climbed just 2% in May in what Johnson calls a “disconnect” between supply and demand. He does see potential for gains in the group, though.

“There was a concern of bankruptcy for a lot of these smaller [exploration and production] producers out there that appears to be sort of coming off the table to a degree, and really lifting these individual equities. So, XLE to me still looks pretty attractive, and it’s making a nice series of higher highs and higher lows on the charts. And I think you’ve got room for that particular ETF to continue to move higher in here,” said Johnson.

Johnson sees the next band of resistance in the XLE ETF at its 200-day moving average at around $50.70. The ETF closed Friday at $38.76.

Should energy stocks find some momentum, Federated Hermes portfolio manager Steve Chiavarone is picking out the high-quality names that should ride higher.

“I think that when you look at the space, our story has remained the same — companies with good strong balance sheets that you know are going to be around in two, three years as the sector consolidates, and that can pay yield in the meantime we think provide the best opportunity for long term winners,” Chiavarone said during the same segment.

The XLE ETF yields nearly 6%, far better than the 1.9% dividend yield on the S&P 500.


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