O’Neil Energy/Material Weekly

Enerplus (ERF.CA; ERF:CN) – $3.7B market cap – Technicals: The stock broke out of a stage-three 11-week cup base
last week and remains in the pivot range ($14.5-15.5). It has a strong fundamental profile and has seen a sharp
improvement in its technical profile in the last two weeks. A/D Rating improved to B from C-, Up/Down Volume ratio to 1.5
from 1. RS line is at a multi-year high with an RS Rating of 97. Company description: Enerplus engages in the
exploration and production of crude oil and natural gas. I

Strong Farm Economics Leads Resilience in Agriculture

Attached is a note on agrochemicals from Director, Research Analyst Kenley Scott and William O’Neil India Analysts Shailendra Bhogaraju and Harish S.

 

Key points from the report

  • Agriculture-related stocks are outperforming the general market due to strong market fundamentals. Related industry groups like Chemicals-Agricultural and Agricultural-Operations have strong RS Ratings compared with other groups in the Basic Material sector. Chemicals-Agricultural is among the top-performing groups in the U.S. with Group Rank of less than 10 in the past eight weeks.
  • The grain inventory levels are at a decade low due to lower supply in recent years. With the global grain consumption likely to exceed production in 2022, it is expected to take another two years to bring the inventory back to mean levels.
  • The geopolitical escalations in the key crop and fertilizer exporting regions of Russia and Ukraine have led to supply-side shocks and further tightening of the market.
  • The tight grain market has led to record high crop prices. Agrochemicals are benefitting from this inflationary environment as high farmer profitability is incentivizing more plantations and supporting higher fertilizer prices.
  • Outlook for nitrogen fertilizers remains strong compared with other fertilizers due to their inelastic nature of demand.
  • European manufacturers continue to be impacted by the sharp spike in natural gas prices that accounts for 33% of the nitrogen fertilizer production cost. The spread between Europe and the U.S./MENA is expected to persist well into 2023. We highlight our Focus List ideas CF Industries (CF) and Oci (OCIO.NL) which are major beneficiaries in the current environment.
  • The crop protection chemical space will also benefit from the above discussed agricultural fundamentals. We highlight the watchlist idea UPL (UPH.IN) which has a growing market share in this space and the market leadership in biosolutions, the fastest growing agrochemical vertical.
  • Refer to page 7 for a list of stocks related to agriculture that should be kept on the radar.

O’Neil Energy/Material Weekly

Erg (ERG.IT; ERG:IM) – $5B market cap – Technicals: The stock bounced off its 10-WMA and is trading slightly above
its ideal buy range after recently breaking out of a stage-one, 22-week consolidation. The stock has mixed fundamental
ratings: EPS Rank of 43 and SMR Rating of C. Strong technical ratings: A/D Rating of A and RS Rating of 88. Accumulate
on a low-volume pullback to its 21-DMA. Company description: ERG is Italy’s largest renewable energy and one of the
top-five power-producing companies in the country.

Global Sector Strategy

Key Points:

  • Nasdaq 2000–2002 versus ARKK (and other hyper-growth in general) still holding.
    • Third leg lower for ARKK totaled -51% over seven weeks versus 44% over 11 weeks for Nasdaq.
    • The subsequent Nasdaq rally was +44% over eight weeks, including +9% on the first day. ARKK is already up 25% from lows in just two days.
  • Nasdaq also had a follow-through day (FTD) on day 4 in April 2001 and rallied another 25% from there. Rally failure signs began with clustering of distribution and a new breach of the 50-DMA.
    • During its rally, stocks that fell the most rallied the hardest. For example, AMZN and NTAP, which were down over 90% from highs, more than doubled from lows.
    • Still, those very volatile rallies faded after 4–8 weeks. A better approach is to look for leadership and stocks near highs with rising RS lines. Examples include HR & Block and Flir Systems, which made new highs very quickly after the market bottomed and went on to lead for more than a year after that.
    • In the current market, examples of extremely oversold stocks which could lead short-term include AFRM, COIN, ASAN, CVNA, ZM, PTON, etc.
    • Examples of those in positions to lead long-term include CF, DVN, OXY, SQM, HRL, IRM, AVGO, MAT, LNTH, SMCI, PAG, and FCN.

O’Neil Energy/Material Weekly

Crude oil prices (WTI) have maintained support in the mid-$90s throughout a consolidation over the past two months.
Prices have formed a wedging pattern of higher lows and lower highs, and late this week after testing a break to the
upside. Above $112-114 could be a significant breakout to above 2011-2014 highs, leaving no major resistance until the
prior all-time high of $148. See weekly and monthly charts for WTI below.

O’Neil Energy/Material Weekly

Reliance Industries (REL.IN; RIL:IN) – $245B market cap – Technicals: The stock is slightly extended above its ideal buy range after breaking out of a stage-two double-bottom base. It has a strong fundamental profile with EPS Rank of 88 and SMR Rating of Band strong technical ratings like an A/D Rating of B and RS Rating of 55 (up from 41 two weeks ago). Accumulate on a low-volumepullback to its 21-DMA

O’Neil Energy/Material Weekly

Encavis AG (ECVX.DE; ECV:GR) – $4B market cap – Technicals: The stock is slightly extended above its key moving
averages after recently breaking out of a cup-with-handle base. It has a strong fundamental profile with EPS Rank of 75
and SMR Rating of B and strong technical ratings like an A/D Rating of A and RS Rating of 92. Accumulate on a lowvolume pullback to its 21-DMA.

Global Sector Strategy

Key Points:

 

  • Nasdaq 2000 top vs ARK Innovation (ARKK) and others within the hyper-growth style continues to play out in similar fashion.
    • Charts including the timeframe and magnitude of runup, the time/magnitude of the first drop and first failed rally attempt, and time/magnitude of the second drop remarkably similar.
  • Now, the rally attempt after the second major low was +30% over four weeks for the Nasdaq while it has been +38% over three weeks for ARKK.
  • From there, the Nasdaq failed to hold a retake of the 10-WMA and was back at lows within four weeks. It would then fall another 29% over seven weeks to the ‘third leg’ lows. Similarly, ARKK is back at lows over just three weeks, after having failed to hold a retake of the 10-WMA.
    • Similarities of group outperformance between then and now include Agricultural Operation, Beverages-Alcoholic, Retail-Food Chain, Oil&Gas-Integrated, and Tobacco.
    • Similarities of group underperformance between then and now include Computer-Data Storage, Computer Software, Electronic Manufacturing/Instrumentation, Internet, and Semiconductor.