Is This Massive Base in Energy a Good Thing?
Here are my morning notes for SFO Magazine:
SFO Daily: Stocks on Fire, Keep Your Eye on the Energy Space
Friday, February 3, 2012
By J.C. Parets
They loved the jobs number this morning and stocks are on fire. We’re seeing prices in the S&P500 not seen since last July, and levels in the Nasdaq100 not seen in 11 years.
MORE BULLISH FUEL
The sector participation continues to rotate into the more offensive industries. In my opinion, this is the most overlooked bullish characteristic out there. And that’s OK by me. The more this is talked about and written about, the closer we probably are to another period of defensive rotation.
LOOK BACK
Throughout 2011, the defensive sectors led the way. Utilities, staples, and healthcare were the best areas to be in last year. So far in 2012, Financials and Materials are the best performing sectors, followed by Industrials, Technology and Consumer Discretionaries. The worst performing sectors have been the Utilities and Consumer Staples. This is what you want to see in a bull market.
One area that we’ve been talking about here on SFO magazine where we’re still waiting for participation is in the Energy space.
$XLE is up for the year, but still dramatically underperforming its offensive counterparts. $XOM came out with earnings this week and apparently the measly $121 billion that they did in Revenues last quarter wasn’t enough (I hope that my sarcasm is truly noted).
OLD MARKET ADAGE
The truth is that the lack of Energy leadership thus far could be a longer-term blessing. The saying goes, “the bigger the base, the higher in space”. And this massive four-month base in $XLE should be enough to take the S&P SPDR up to the 2011 highs near $80, which represents over a 10% move from current levels. This is important to the overall market due to the larger than average market capitalizations of its components.
Tags: $XOM $CVX $XLE $XLB $XLF $SPY $DJIA $QQQ