Oil was volatile Tuesday after President Donald Trump‘s announcement that the U.S. would withdraw from the Iran nuclear deal and restore sanctions; the energy sector, typically closely tied to the commodity, was higher.
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Immediately following the announcement shortly after 2 p.m. ET, crude was negative on the day, though off session lows. The commodity’s initial decline was sparked after conflicting reports on the then-pending decision.
Oil crossed above $70 for the first time since late 2014 on Monday, pushing energy stocks higher along with it, but space reversed when Trump tweeted he would be making an announcement about the deal.
While it appears this event could rock the recent crude rally, which has sent energy stocks higher as one of the top sectors this year, some market experts say further gains are to be had.
“So much has been built into this Iran deal, oil probably sells off on the news, but the equities in the energy space are still extremely cheap relative to the commodity itself, and M&A in the space … you have a very high probability of a major M&A swing,” said Larry McDonald, editor of The Bear Traps Report, Monday on CNBC’s “Trading Nation,” referring to “news” of what comes out of Trump’s announcement.
McDonald said he’s particularly bullish on natural gas in the energy space, due in part to rising temperatures across the U.S.
From a technical perspective, energy prices have more room to run, said Frank Cappelleri, head market technician at Instinet. He said the upside could be due in part to the sector’s recent underperformance relative to the underlying commodity, oil.
Indeed, while crude has rallied nearly 50 percent in the last year, the popular XLE energy ETF is up a little more than 9 percent in the same time.
“The bigger thing I’m looking at here is this very large potential bottoming formation that continues to be in place. We’re getting close to these resistance points again. I think the potential is there for a breakout eventually, but because of all this, I think the XLE pauses a bit before it gets there,” he said Monday on “Trading Nation,” examining a chart of the XLE.
Oil was lower Tuesday, while the S&P 500 energy sector was little changed on the session.