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Are Moving Averages Bearish for Chinese Energy Companies?

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Nov. 18 2015, Published 6:52 a.m. ET

Moving averages

Chinese energy companies CNOOC (CEO), China Petroleum & Chemical Corporation (SNP), and PetroChina (PTR) have fallen below their 100-day and 20-day moving averages by an average of 12% and 7%, respectively. CEO, SNP, and PTR are trading 9%, 8%, and 17%, respectively, below their 100-day moving averages. ExxonMobil (XOM) and Chevron (CVX) are trading 2% and 5%, respectively, above their 100-day moving averages. Also, the energy sector benchmark, the Energy Select Sector SPDR ETF (XLE), is trading 0.5% below its 100-day moving average and 1% below its 20-day moving average.

After hitting rock bottom on August 24, 2015, these US-based energy companies have since risen 31%, as compared to an average of 1.3% for the Chinese energy stocks.

Moving averages are lagging indicators used to confirm an existing trend. When an underlying asset’s price is above its long- and short-term averages, this indicates a rising trend, and vice versa. Moving averages provide important supports and resistance points for an underlying asset’s movement.

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Analysts’ estimates

Wall Street estimates suggest that China-based energy companies may rise by an average of 39% over the next 12 months, as compared to 5% for their US peers. These estimates indicate rises of 42%, 37%, and 31%, respectively, from current prices for CNOOC, China Petroleum & Chemical Corporation, and PetroChina.

The current PE (or price-to-earnings) ratios of CNOOC, China Petroleum & Chemical Corporation, and PetroChina are 7.3x, 23x, and 19.20x, respectively. The PE ratios of ExxonMobil and Chevron are 16.5x and 18x, respectively.

The estimated PE ratios for next year for ExxonMobil, Chevron Corporation, CNOOC, China Petroleum & Chemical Corporation, and PetroChina are 19x, 20.4x, 7.2x, 10x, and 12x, respectively. The forward PE indicates that China Petroleum & Chemical Corporation and PetroChina are relatively cheaper than CNOOC as well as their US peers.

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