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Why 2015 could bring more of the same for oil

Lawrence Lewitinn
Lawrence Lewitinn
Talking Numbers

Even the best investors are losing money on crude.

Carl Icahn and John Paulson are among the many 10-figure names that lost millions of dollars owning energy-related stocks as oil plummeted, according to The Wall Street Journal.  In the last six months, the price of crude dropped 47 percent, taking with it energy stocks. The ETF tracking the sector (trading under the ticker symbol XLE) fell 21 percent during that time period.

And while the XLE rallied 7 percent last week, anyone hoping a turnaround is underway in the energy sector may be sorely mistaken, according to some traders.

“What’s happening right now is just a very brief pause,” said Gina Sanchez, founder of Chantico Global.

“The Saudi government is probably willing to continue to dip into their reserves for at least a year,” she said. “I don’t think that necessarily shakes the shale players out; I think they’ll continue to run even at profitable levels. But it does mean the XLE is in for some more pain if that scenario plays out.”

The technicals are also showing bad news ahead for the energy sector, according to the chart work of Steven Pytlar, chief equity strategist at Prime Executions.

A “very nice uptrend in the XLE from 2009 until this year was driven by new shale plays and general economic growth,” said Pytlar. “And then it broke this year. Technically, when you see a long-term, multiyear trend like that break, it’s a signal that demand is dissipating very quickly in that industry and that supply is becoming very strong.”

That means there’s a risk that further underperformance in the sector is ahead, he said.

“We would remain underweight in the energy space,” Pytlar recommended.