Trading Nation

Buying this sector is still a ‘dangerous game’: Technician

Buy battered energy stocks?

The worst performing sector of the S&P 500 year to date was an outlier on Thursday, when the energy sector gained about 1.5 percent as all major U.S. stock indices closed down. But a true energy rally may be too distant to bet on, according to some traders.

"When you see a chart this pervasively bad, it does invoke the contrarian within. But that's been a dangerous game to play," Rich Ross of Evercore ISI said Thursday on CNBC's "Power Lunch."

According to Ross' chart, the SPDR Energy Sector ETF (XLE) could be moving toward a technical weekly reversal, he said, as the XLE drops down to multiyear lows.

The XLE has fallen more than 13 percent year to date as oil and other commodities prices have plummeted, but rallied on Thursday closing up about 1.6 percent. The S&P energy sector is down about 15 percent year to date.

However, given the steep plunge in energy stocks, Ross recommended using close stops to trades and working to mitigate any risks.

"To call this a more meaningful bottom is far too premature," Ross said. "You could see a tactical move back to the upside here, but to play for anything like that, very high risk, high reward."

Gina Sanchez of Chantico Global said Thursday that even though prices will eventually rise, the comeback won't be as notable as investors had foreseen, mostly due to U.S. shale production becoming more efficient.

Read More Energy stocks are still no bargain

"They've actually ended up pushing the eventual break-even lower than it should be," Sanchez said. "The outcome for oil at this point is not as rosy as it could have been."

The U.S. Energy Information Administration released data Wednesday that showed U.S. refineries running at record high gross inputs, of more than 17 million barrels per day in the past four weeks. The report said lower crude oil prices and demand for petroleum products has made refinery investment more attractive.

And whatever bounce oil might see is still a long way off, Sanchez said.

"Right now I think they are cheap, and there's a lot of pressure that's going to keep oil prices low," she said. "But we still have a massive supply glut, and that's not going away for a little while."

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