Energy stocks are in a bear market – but for one investor, that spells opportunity

One fund manager just made a bold, bullish call on energy stocks, even as the sector withers as this year's worst performer and languishes in a technical bear market.

Mark Tepper, president of Strategic Wealth Partners, said in an interview Tuesday on CNBC's "Trading Nation" that he just went overweight on energy names, even as the sector has fallen 17 percent on a year-to-date basis and the price of oil has tumbled 10 percent in that time. Indeed, since the sector is more than 20 percent below the 52-week high hit last December, it has fallen into a condition some refer to as a "technical bear market."

Much of the sector's weakness has been driven by rising shale oil production, increasing crude inventory and investors' doubts about production cut cooperation by OPEC members.

But according to Tepper, the "steepest drilling upcycle in recent memory is slowing with Baker Hughes reporting flattening oil rig count, and then valuations are signaling a reversal."

His valuations measurement model is currently one standard deviation below its average level. Not only does that indicate energy stocks may now be inexpensive, but that specific level is typically seen before a bullish reversal.

At this point, oil simply cannot seem to "get out of its own way," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, said Tuesday on "Trading Nation." The top for crude in the near term, he said, appears to be $50 to $55 per barrel and he isn't optimistic on the popular energy-tracking exchange-traded fund, the XLE.

However, he likes it as a rather contrarian trade for those who believe equities will see selling pressure coming up.

"I think as a mean reversion trade, it's actually quite interesting. In fact, I think it's actually a great trade to hide the coming decline in equities. If you think that volatility is going to increase and the broader market is going to sell off, as a natural correction because of seasonality. Energy is going to be a great place to hide. And I think that's going to be the trade, long XLE, short S&P for a trade, as a hedge," Schlossberg said.

On Wednesday, the energy sector was one of four S&P 500 sectors trading in positive territory.

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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.

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.

Follow Michael Santoli on Twitter @michaelsantoli

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