Energy Sector Finally Showing Relative Strength
- Posted by JC Parets
- on February 21st, 2012
We’ve been waiting patiently for Energy to make its move. During January and early February the stock market was rocking and rolling but the Energy space was lagging. We said on February 2nd that it was time for Energy to step up to the plate. Its components’ huge market caps have a heavy weighting in the S&P500. So if the market overall was going higher, it needed some participation out of these Energy names (Exxon, Chevron, Conoco, etc).
Take a look at the recent breakout to new highs in the Energy Select SPDR ETF ($XLE). It appears as though a retest of the 2011 highs near 80 is now in the cards. More importantly, the relative strength in Energy compared to the overall market is finally breaking out to the upside. Other than a couple of quick counter-trend rallies, this sector has been underperforming the overall market for almost two years. No longer the case:
Now take a look at the United States Oil Fund ($USO). I don’t think it’s a coincidence that we are seeing a breakout here at the same time that the energy sector is finally showing signs of life. Throughout the Fall, $USO was having trouble just under the $40 dollar level as we can see with the red arrows. Now that we have broken out with a gap higher this morning, any retests of that level should serve as support in the future.
I would look for a breakdown back below $40 in $USO as a heads up that something could be wrong in the energy space and, as a result, the market overall. As far as $XLE is concerned, I would not expect breakouts above $80 without at least some consolidation, either through time or through price. But I think the recent action and rotation is very constructive.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.blog comments powered by Disqus
J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) and is a member of the Market Technicians Association. More
- Bull Market Fridays With Pearls
- Bullish Sentiment Drops At All-Time Highs
- Price Targets In Unchartered Territory
- Why Hong Kong Has My Attention
- Are We Seeing Rotation or What?
- Interview With Technician Mark Arbeter
- Weekly Wrap Up With Dr. Phil
- This Pattern Has Been Working
- Can Gasoline Prices Rally From Here?
- Charting Live on CNBC Fast Money
Archive by Year