Amid escalating tensions in Iraq, energy exchange traded funds are getting plenty of attention these days.
Even with the S&P 500 snapping a multi-week winning streak last week, energy ETFs, many of which already rank among the current quarter’s best-performing sector funds, made new highs. Although U.S. stocks closed higher Friday, broadly speaking, the day was nothing to write home about as just 16 ETFs made new all-time highs.
However, 11 of those ETFs were energy funds, including the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP). XOP surged 3.3% on the week after the fund was highlighted as potential breakout play last Monday. [Oil ETF Nears Another Rally]
It was noted that a breakout for XOP would be confirmed by a move the $78, which the ETF delivered with aplomb, finishing the week at right at its new all-time high of $80.70. Important to watch in the coming days, in addition to the fundamental catalyst of higher oil prices due to conflict in Iraq, will be XOP’s surging relative strength against the S&P 500.
“XOP may just be on the verge of a major when compared to the S&P 500,” according to Captain John Charts. “Below is a monthly Relative Strength chart, so confirmation of a bullish or bearish breakout needs to come at the end of the month! So set your alarm and see if it can do it. We talked about the daily and monthly bullish price breakout back in April, and so far this group has done quite well.”
As for the impact of rising oil prices on XOP, the ETF has a five-year correlation of 0.67 to the United States Oil Fund (NYSEArca: USO), according to State Street data. XOP correlation to the Energy Select Sector SPDR (NYSEArca: XLE) is almost 0.94 over the same period.
Investors have warmed to XOP, sending $101.6 million of the $1.1 billion currently held by the fund into it just since the start of the year.
XOP Relative Strength vs. S&P 500
Chart Courtesy: Captain John Charts
ETF Trends editorial team contributed to this post.
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.