Eoin Treacy's view

– It comes as no surprise that the weakness of the commodity complex and particularly oil has taken a heavy toll on the value of resources companies. As a result they dominate 2014’s laggards. However it is worth considering that this year’s worst performers are often not next year’s worst performers because so much of the bad news has already been priced in. In some cases they can post outsized rallies, at least in percentage terms, because their prices have fallen so much. After all, a $1 rally from $20 is a more influential event than a $1 rally from $100. 

Among the S&P500’s top-10 worst performers this year:




Transocean, Denbury Resources, Nobel Corp and Ensco Plc are the four worst performers on the S&P 500 this year and all posted upside weekly key reversals last week. There has been a great deal of discussion about whether last week’s rally in energy shares and energy related stock markets was foreshadowing the rebound for oil contracts or whether it was simply book squaring ahead of the holiday season. 

At present, we do not have enough evidence to draw a conclusion. Crude oil remains in a consistent downtrend and a $5 rally will be required to signal short covering and a low of more than short term significance. However, if we were to assume that oil is close to a bottom, it would be reasonable to conclude that at least some energy shares are already bottoming. At the very least they are deeply oversold and have potential for an additional bounce. 

In the consumer discretionary sector Mattel (Est P/E 15.5, DY 5.01%) completed a Type-2 top in January with a massive reaction against the prevailing three-year uptrend. It has since trended lower and at least stabilised near $30 over the last two months. It will need to at least hold the recent lows if potential for a reversionary rally is to be credible.