Energy stocks have badly lagged the S&P 500 this year, but one top technician suggests that a turnaround is ahead. Carter Worth, the chief market technician at Oppenheimer, is upgrading the sector to "overweight" from "equal weight," saying that energy stocks are now set up for a strong rally relative to the broader market.
"The relative underperformance of the sector compared to the market is reaching extreme levels on a rolling two-year and five-year basis," Worth wrote in a Monday note. "Most key sectors at this point have exceeded their respective all-time highs of 2007 or 2008, as all will know, and the presumption is that energy is setting up to do so as well."
Worth had rated the energy sector "equal weight" at the beginning of the year, reserving the "overweight" designation for health care, consumer discretionary, industrials and financials—the four sectors which, indeed, have turned out the strongest performances in 2013 thus far.
But Worth is now changing his tune, noting the "extreme underperformance" of the energy sector over the past five years.