Very quietly Energy has been outperforming the broad market since May. In addition, earlier this month the Energy Sector SPDR ($XLE) broke out of the downtrend in relative strength (RS) that takes us back to the April highs. Take a look at the chart below:
The best part about this relative strength is that it comes within the context of a much bigger breakout that occurred in the fall last year. Check this out:
Is that something or what?
Now getting back to the near term chart of $XLE up top, we can see some key support around $73 going back to February. This level was broken temporarily creating a nice little Bear Trap in June before the monster Risk-On rally that we saw across the board late last month.
$XLE is now trading above both the 50 and 200 day moving averages. I can’t look at that as a bad thing. And as far as the biggest components are concerned, $XOM is testing historic highs and $CVX has already taken out the 2008 highs and working on retesting the all-time highs made earlier this year.
The bottom line is that Energy is performing, not just on an absolute basis, but on a relative basis as well (in the near term and long term picture). You can ignore the price action if you want, but to me Energy looks like something that you buy on any dips. There are a lot of ways to take advantage of this. Don’t be afraid to look at the Relative Strength (the RS – NOT the RSI, that’s something else). I would look for names that already took out their 07-08 highs, in other words, those showing Relative Out-performance. Own the leaders, the ones Winning, if you will. Manage risk and you’ll be OK