Due to the falling crude oil market, oil-focused exchange traded funds(ETFs) have been on a down-slide over the past few trading sessions. The Energy Select Sector SPDR (XLE) is down more than 5%. Brett Steenbarger of Seeking Alpha notes historical patterns among markets can serve as useful heads-up signals for traders. The lull in energy related stocks may be a signal to the future movements of the large-cap S&P 500 Index.
Steenbarger’s example is: since 2004, there were 211 occasions when XLE was down more than 1% over a 20 day period. Ten days later, the S&P 500 Index was up an average 1.03%.
The conclusion? It appears falling energy markets equal superior near-term returns, maybe because traders view such declines as helpful to the economy. When energy is on the rise, markets perform subnormally in the near term. These sector relationships help traders anticipate market movement and furthermore, understand when markets are not living up to their usual performance.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.