Natural Resource Stocks Caving In

The number of natural resources stocks on the IBD 50 list of growth stocks has dwindled to fewer than 10 after dominating the list just weeks ago. The evaporation of natural resource names from the list occurs as fears of a recession mount. And this lowers earnings expectations for these recent highfliers. Most have crossed under technical lines of support.




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And most have relative strength lines that are rolling over from recent highs. This all adds up to a sign that it’s time to reevaluate these stocks’ place on watchlists as the stock market works through which sectors will ultimately excel in the next uptrend.

Natural Resource Stocks Under The Line

Among coal stocks, Arch Resources (ARCH), Alpha Metallurgical Resources (AMR) and Warrior Met Coal (HCC) have all sunk below their 50-day moving averages. Normally you want to see stocks that dip find support at the line. Falling below it is a bearish sign. And the breech raises questions about how long it will take Arch and Alpha to get back to the new high levels they set in June. Warrior’s case could be a bit bleaker. It peaked in March, but is testing support at its 200-day moving average, below its 50-day line.

Fundamentally, the coal stocks still look decent now. Their earnings have rebounded from drops during Covid-plagued 2020. Wall Street analysts expect all three will see a more than doubling of earnings this year. It remains to be seen whether the Federal Reserve’s fight against inflation tips the economy into recession. This would likely bring a drop in demand for natural resources.

Fertilizer stocks have also failed to hold their 50-day lines. Chile-based Sociedad Quimica & Minera (SQM) had run up 27% to profit-taking territory after breaking out above a consolidation buy point of 90.97 on May 18, according to MarketSmith chart analysis. It’s now round-tripped that entire gain and has fallen 28% from its peak of 115.76 on May 27.

Deerfield, Ill.-based CF Industries (CF) is a testament to why earnings growth matters more when deciding to buy a stock, but stock price action takes the lead when choosing to hold or sell. The nitrogen-based fertilizer maker has a perfect EPS Rating of 99 with analysts predicting a 192% profit increase this year, according to IBD Stock Checkup. But its stock price, now well below its 50-day line and flirting with its 200-day line as it trends lower, suggests investors are increasingly worried about earnings prospects down the line.

Oil & Gas Leaders Weakening

Among oil stocks, Occidental Petroleum (OXY), New Fortress Energy (NFE) and Cenovus Energy (CVE) are meeting resistance at their 50-day lines following recent drops below that level. Viper Energy Partners (VNOM) is trying to hold the 200-day line.

Crude oil prices, as measured by West Texas intermediate contracts traded on Nymex, were up about 3% at 109.10 on Friday. But they’re well down from $122.11 on June 8, according to WSJ Markets.

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