The Energy index closed on Friday July 18, 2008 at $386.69.

The energy index has a market capitalization of about $2.2 trillion, which represents about 35% of the S&P/TSX Composite index. Some Canadian companies you may recognize in the Energy Index are Pengrowth Energy Trust, Petro-Canada, Precision Drilling Trust, Suncor Energy Inc., Vermillion Energy Trust, Canadian Oil Sands Trust, EnCana Corporation and Imperial Oil Limited.

The rolling 52-week high for the Energy index over the last year was $470.01 on May 21, 2008, and the 52-week low was $297.07, reached on January 23, 2008. From the trough (low) to the peak (high), that represents an increase of 49% for the Energy index vs. the S&P 500, which was up 3.9% over that same time frame, and the S&P/TSX, which was up 16.9%. Year-to-date the Energy index is up 7.7% if you measure from December 31, 2007 close to July 18, 2008. The S&P/TSX is down –2.3% over the same period and the S&P 500 is down 13.5%. Despite it’s recent drop of more than –15%, the energy index is one of only two positive performers in the S&P/TSX year-to-date.

Technically, the chart is telling us that investors are bearish toward the Energy index. The trend from January 23, 2008 to May 21, 2008 was bullish represented by the upward channel in the chart. Similar to the S&P/TSX, a triple top pattern occurred on May 21, 2008, June 6, 2008 and June 19, 2008 followed by a downward channel from June 19, 2008 to date. On June 25, 2008 the current price dropped below the 50 day moving average at about $432. Watch for the next support level being broken or held at the 200-day moving average, which is about $470.
The Energy index price-to-earnings ratio is trading at 14.82 times vs. the S&P/TSX, which is at 17.22 times. The Energy index dividend yield is 2.97 on average vs. the S&P/TSX, which is 2.71%. The drop in energy prices has been due to a number of factors including periods where the US dollar has rallied, a US gov’t report showing a leap in crude supplies, refiner’s margins being squeezed by the increased cost of oil offset by consumer resistance to pay the end price, and lastly, a general market sell-off due to increased concerns about the impact of higher energy costs on company profits and consumer spending. Any rise of late has been a result of Geopolitical concerns related to threats of production in Nigeria and Brazil and tension between the West and Iran. Demand and supply issues have led to the rising price of energy, and in the long term this should remain the pattern with continued rising demand from places like China.


In the short term technicals are bearish but longer term the fundamentals favour the bulls.