Energy plunge intensifies; ‘sell, underweight or avoid’

Energy stocks can't seem to catch a break.

The S&P 500 energy sector weighed heavily on stocks on Monday with a plunge of more than 4 percent. The tumble comes on the back of an even more severe drop in crude oil prices, which settled down almost 6 percent Monday to near seven-year lows.

On Friday, the Organization of Petroleum Exporting Countries announced that it will not cut production even as petroleum reserves have reached record highs. The move has aggravated strains on an already-beleaguered market suffering from a massive supply glut. And according to some traders, there's no end in sight for energy's woes.

Erin Gibbs of S&P Investment Advisory said that OPEC shows no signs of slowing production, which should continue to put pressure on crude oil. Subsequently, energy stocks still have more room to fall, she said Monday on CNBC's "Power Lunch."

Read MoreOil is putting a cap on equity growth: Bob Doll

Read More The S&P 500 energy sector has fallen more than 22 percent year to date.

Along with low oil prices, Ari Wald of Oppenheimer said energy companies face more problems than any other sector in weak corporate credit. Wald also pointed to some troubling signs in the chart for the energy sector ETF, XLE.

XLE has recently broken a 12-year uptrend and remains below its 200-day moving average, Wald said.

Wald said the weakness in energy could translate into more pain for the broader market as well.

"If market corrects in Q1 as we expect, we think energy will likely be the area that drags the market lower," Wald said. "As a market hedge, we continue to recommend selling, underweighting or simply avoiding energy."

Want to be a part of the Trading Nation? If you'd like to call in to our live Wednesday show, email your name, number and a question to TradingNation@cnbc.com.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more