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."

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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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