Will the Oils-Energy Sector Catch QE Fatigue?

NEW YORK ( TheStreet) -- There continues to be a divergence between Nymex crude oil and the Energy Select Sector SPDR Fund ( XLE), which ended September with a positive but overbought weekly chart profile while crude oil ended the third quarter with a negative weekly chart profile.

Fundamentally www.ValuEngine.com shows the oils-energy sector only 3.7% overvalued with 11 of the remaining 15 sectors more overvalued. The fundamental divergence is the fact that all of the top 11 components of the XLE have had buy ratings according to ValuEngine at least since Aug. 1.

Even with buy ratings, six of the energy stocks I am profiling today are undervalued while the other five are overvalued. My investment theme for these stocks is to use my "buy and trade" strategy to reduce holdings in the oils-energy sector overall, but maintain core holdings.

In a speech in Indianapolis on Monday Fed Chief Bernanke defended FOMC monetary policy actions including the extended period of low interest rates and the three quantitative easing programs. In my judgment these moves hurt the Main Street economy, which depends upon interest income for savors and low gasoline prices for citizens and merchants.

I discussed all of this on Sept. 14 in Bernanke Does the Expected and Then Some. The bottom line is without the commodity speculation caused by monetary policy, gasoline prices might be at $1.50 a gallon, which would have gone a long way to generate economic growth on Main Street.

With monetary policy causing speculation in crude oil, much of the strength in some energy stocks can also be attributed speculation due to monetary policy.

Chart Courtesy of Thomson/Reuters

The daily chart for crude oil ($92.34) above shows the commodity below its 50-day and 200-day simple moving averages at $93.55 and $96.23, which is a sign that oil prices have risk to the downside. My semiannual value level lags at $76.71 with a new monthly pivot at $91.34 and weekly and annual risky levels at $98.53 and $103.58. We have stability as long as weekly closes are above $91.34.

Chart Courtesy of Thomson/Reuters

The daily chart for XLE ($73.80) shows the ETF above its 50-day and 200-day simple moving averages at $72.14 and $70.10 providing the technical divergence versus crude oil. My semiannual value level is $47.34 with a monthly pivot at $70.63 with weekly and quarterly risky levels at $76.23 and $85.27. We have stability as long as XLE has weekly closes above the monthly pivot at $70.63.

My Changing Opinion

Back on Aug. 1 I wrote Trading the Undervalued Energy Sector stating that QE3 would help the energy sector.

On Sept. 11 I wrote Energy Stocks Outperforming Crude Oil where I explained the tug of war between the anticipation of QE3 vs. the slowing global economy.

Today I update the profiles for some of the stocks shown in these two posts.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-Engine" rating is a strong sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: The price at which to enter a GTC limit order to buy on weakness: W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC limit order to sell on strength.

Apache ( APA) ($86.41 vs. $86.12 on Aug. 1) continues to have a buy rating according to ValuEngine with a favorable price-to-earnings ratio. APA is below its 200-day SMA at $92.26. APA is well below its February 24 high at $112.09 with the June 4 low at $77.93.

The weekly chart is negative with the 200-week SMA a major resistance at $96.29. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Anadarko Petroleum ( APC) ($70.62 vs. $69.44 on Aug. 1) continues to have a buy rating according to ValuEngine with an elevated P/E ratio and is below its 200-day SMA at $73.42. APC is well below its February 17 high at $88.70 with the June 4 low at $56.42.

The weekly chart profile is negative with the 200-week SMA at $63.86. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Conoco Phillips ( COP) ($57.41 versus $54.44 on August 1) continues to have a buy rating according to ValuEngine with a favorable P/E ratio. COP is above its 200-day simple moving average at $55.53. COP traded as high as $59.68 on March 19 and as low as $50.62 on June 4.

The weekly chart profile is positive but overbought with the 200-week SMA at $46.17. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Chevron ( CVX) ($117.25 vs. $109.58 on Aug. 1) continues to have a buy rating according to ValuEngine with a favorable P/E ratio. CVX is above its 200-day SMA at $106.95. CVX traded to a new multi-year high at $118.53 on Sept. 21. The weekly chart is positive but overbought with the 200-week SMA at $87.79. Investors and traders should sell strength to the risky level.

EOG Resources ( EOG) ($114.19 vs. $98.01 on Aug. 1) continues to have a buy rating according to ValuEngine with an elevated P/E ratio and is above its 200-day SMA at $104.78. EOG traded to a year to date high at $119.69 on Sept. 14 and has a positive but overvalued weekly chart profile with the 200-week SMA at $92.99. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Halliburton ( HAL) ($33.67 vs. $33.13 on Aug. 1) continues to have a buy rating according to ValuEngine with a reasonable P/E ratio and is above its 200-day SMA at $33.23. HAL traded as high as $39.19 on Feb. 24 then as low as $26.28 on June 26.

The stock tried to set another 2012 high on Sept. 14, but did not. The weekly chart is negative with the 200-week SMA at $32.37. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

National Oilwell Varco ( NOV) ($80.55 vs. $72.30 on Aug. 1) continues to have a buy rating according to ValuEngine with a so-so P/E ratio and is above its 200-day SMA at $74.60. NOV set a multi-year high at $89.95 on September 18.

NOV is positive but overbought with the 200-week SMA at $55.20. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Occidental Petroleum ( OXY) ($86.38 vs. $87.03 on Aug. 1) continues to have a buy rating according to ValuEngine with a so-so P/E ratio with the stock below its 200-day SMA at $91.01.

OXY had a 2012 high at $106.68 on Feb. 28 with a 2012 low at $76 59 on June 1. The weekly chart profile is negative with the 200-week simple moving average at $83.30. Investors and traders should reduce holdings on strength to my weekly pivot at $87.35 then employ a "buy and trade" strategy between the value level and risky level.

Schlumberger ( SLB) ($72.58 vs. $71.26 on Aug. 1) continues to have a buy rating according to ValuEngine with an elevated P/E ratio and is above its 200-day SMA at $71.08. SLB traded to a 2012 high at $80.78 on Feb. 22 and as low as $59.12 on June 26, and has a negative weekly chart with the 200-week SMA at $66.97. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

Williams Companies ( WMB) ($35.60 vs. $31.79 on Aug. 1) continues to have a buy rating according to ValuEngine with a so-so P/E ratio and is above its 200-day SMA at $30.54. WMB set a new multi-year high at $35.79 as this new quarter began on Monday.

The weekly chart is positive but overbought with the 200-week SMA at $20.62. Investors and traders should reduce holdings with the stock above my weekly pivot at $35.54. My annual risky level is $40.78.

Exxon Mobil ( XOM) ($91.80 vs. $86.85 on Aug. 1) continues to have a buy rating according to ValuEngine with a reasonable P/E ratio and is above its 200-day SMA at $85.52.

XOM traded to a new multiyear high at $92.57 on Sept. 25 and has a positive but overbought weekly chart with the 200-week SMA at $74.77. Investors and traders should employ a "buy and trade" strategy between the value level and risky level.

The table of Oils-Energy stocks shows that all 11 stocks have Buy ratings. The most undervalued stock is HAL by 17.7%. WMB is the most overvalued by 50.8%. The worst performer over the past 12 months is APA up 8.5%. WMB was the best performer up 86.3%. All 11 stocks are expected to rally over the next 12 months by 6.1% for WMB to 10.4% for CVX.

Ten of the 11 stocks are higher since Aug. 1. The only stock slightly lower is OXY. Stocks that set their 2012 highs in the first hale of 2012 are APA, APC and OXY. The stocks setting 2012 highs recently are CVX, NOV, WMB and XOM. The others, COP, EOG, HAL and SLB came close to matching first half 2012 highs recently.

This mix of performances could be a symptom of QE Fatigue so reduce positions by booking profits, but maintain core holdings in the oils-energy sector.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.