Getting back into Energy!
Oil, Uranium, US Stocks and Precious Metals – 04/21/2025
Dear subscribers,
The latest Bank of America Fund Manager Survey has some extremes in store. Economic pessimism is now reaching historic extremes.
Recession expectations have risen to the fourth highest level in the past 20 years.
The positioning is now extremely defensive, even by historical standards. Tech is now even more underweighted than energy.
There is now also an overwhelming consensus for further dollar weakness.
The new BOFA FMS shows the extremes to which sentiment has now reached. Any form of easing of the home-made crisis is likely to drive many institutional investors back into the market, at least in the short to medium term. Longer term we are convinced that we have entered the big rotation into EMs.
Everyone wants to get rid of their US stocks...
Everyone expects a hard landing...
Despite the economic slowdown, which is now being priced in again, inflation expectations are rising sharply.
The new BOFA FMS shows the extremes to which sentiment has now reached. Any form of easing of the home-made crisis is likely to drive many institutional investors back into the market, at least in the short to medium term. Longer term we are convinced that we have entered the big rotation into EMs.
Individual names are behaving well
One of the most important indicators of a recovering market are the momentum leaders. If the breakout of these leading stocks fails, this would be a negative sign for the market.
Last week we listed PLTR, TTWO and MSTR as momentum leader stocks that are behaving constructively. Although the Nasdaq was down over 2% for the week, all three of these stocks were acting extremely constructive.
NAAIM Exposure Index
After a longer period of only flushed out sentiment, a relevant positioning index is now also falling significantly.
The index shows the average equity market exposure that NAAIM members (mainly active US asset managers) currently hold in their client portfolios. We are reaching relevant lows.
Time to scoop up the oil stocks again!
Due to the recent sell-off in the energy sector, we were stopped out of our positions in VAL and RIG. In the meantime, however, the charts have stabilized. The fundamental story behind RIG and VAL is still intact – just our risk management has taken effect. Last week we were still somewhat cautious, as we wanted to wait for a more constructive movement in the charts. For us, everything is now right again.
Oil COTs
As in previous weeks, the oil COTs are extremely bullish. The smart money (red, commercials) are positioned at the upper end of the historical range. This level in positioning correlates with bottom formations in the oil price (purple squares). At the same time, the managed money (green, dumb money) is positioned historically low.
Sentiment
Sentiment in the oil sector is completely bombed out by the tariff chaos.
As the latest BofA Survey shows, energy is also historically underweighted.
Demand destruction
The number of oil rigs is now in sharp decline. Especially in the USA. Trump's Drill Baby Drill is turning into more of a disaster in terms of production capacity.
Macro
We are in an absolute valley of economic anxiety due to the Trump tariffs. At the same time, the situation is not deflationary; on the contrary, inflation expectations in the US are on the rise. Long-dated bonds are still under pressure. This stagflationary environment is anything but bad for oil. In addition, the geopolitical risk premium for oil has also been completely priced out. The conflicts in the Middle East have completely faded into the background.
Crude Oil Chart
The price of crude oil on a weekly basis made a false break down below the trading range and continued to rise after a reversal candle in the week before last.
Getting back in RIG und VAL
After we were stopped out of our offshore positions, we are now re-entering the positions in RIG and VAL
On Monday we are buying back RIG and VAL, each with 5% of the portfolio.
The fundamental situation has not changed. We have already made the fundamental case for VAL and RIG here.
On the weekly, Transocean shows a bullish hammer candle as well as an extremely high buying volume from the lows. At the same time, the hammer candle forms an inside candle with the previous week's candle. The RSI on the weekly is also as oversold as it was during the pandemic crash in 2020.
Despite the sharp sell off, the daily chart for RIG already shows an interesting bullish divergence. With the constructive behavior of the oil price, we could form an interesting low here.
The picture is similar for Valaris. Here, too, the range lows have been swept and we are already seeing historic buying volume returning to the share. There are also bullish divergences on the weekly chart.
Our investment in Deutsche Rohstoffe DR0 also looks interesting. In contrast to RIG and VAL, we were not stopped out here. Deutsche Rohstoff has also swept the range lows and offers an interesting opportunity to buy more.
Uranium is setting up with the energy sector
Our conviction on the energy sector is increasing even further here. Other parts of the energy sector are now also starting to look like an interesting entry point. For example, the uranium sector looks extremely attractive again after a long time.
Cameco
Cameco returned to its uptrend on the weekly including a bullish engulfing candle.
Energy Fuels
Energy Fuels shot up impulsively from its range sweep. Further impulsive upside could follow here.
Sentiment in the uranium sector is also bombed out. The uranium Twitter community is extremely pessimistic.
The Sprott Physical Uranium Trust also set a bullish engulfing candle on the weekly after the price tested the most relevant support zone.
We are also taking a 5% position in the $SRUUF ETF on Monday with a stop loss at $12.30.
Precious Metals
Fund managers now expect gold to be the best asset for the current year by a massive margin. Long gold is now the strongest consensus trade.
A major correction for gold is undoubtedly overdue. Nevertheless, the gold/silver ratio stands at over 100 and shows how far the more speculative parts of the precious metals sector have to go. The risk of the miners being drawn into a correction in gold must be weighed against the upside potential that silver and the miners still offer here. For us, the upside potential clearly outweighs the downside. To this end, we are also prepared to accept the possibility of being “caught” again in a correction in the sector.
For the energy sector, on the other hand, the situation is clearer. Everything here is looking like an excellent short, medium and long-term entry point.
Conclusion
The leading momentum stocks are behaving constructively and continue to open up the possibility that the stock market could continue its recovery. The US indices also reacted quite resiliently to the less positive news flow last week. Sentiment and positioning, as well as breadth, could provide the conditions for a bottom. However, it is important to remain open minded here.
The SILJ silver mines remain our largest position. However, it is now also time to re-enter the energy sector. So far we are positioned here with GPRK and DR0 and want to re-enter RIG and VAL and add SRUUF on Monday.
We hope you had a nice Easter holiday and wish you a good start into the week.
All the best
Cycle Investment Strategy