Investors have their pick of market ratios from which to consider. The gold/silver ratio is important in the commodities complex, while the discretionary/staples can be instructive at the sector level.

The list goes on from there. One ratio investors may want to acknowledge is the S&P 500/Energy Select Sector SPDR (NYSEArca: XLE). As its name implies, the ratio gauges the strength of the largest energy ETF against the benchmark U.S. equity index.

When the ratio is heading higher, the S&P 500 is reflecting strength over XLE. As you can see (chart below) the ratio has just experienced one of its sharpest 9 month rallies in the past 20-years. This rally drove the ratio to the top of a rising channel and momentum reached the highest levels ever recently,” according to Chris Kimble of Kimble Charting Solutions.

XLE was the worst performer among the nine sector SPDR ETFs in 2014, but there are signs the energy sector is starting to turn around. XLE is up 6.7% over the past, 10 times the returns offered by the S&P 500 over the same time frame. Additionally, XLE components could deliver upside surprises this earnings season, further bolstering the bullish case for energy stocks.

Wells Fargo Advantage Funds Chief Portfolio Strategist Brian Jacobsen also believes that the energy sector could produce positive earnings surprises ahead as strategists anticipate a 63% contraction in first-quarter earnings for S&P 500 energy stocks, reports Julie Verhage for Bloomberg. [Energy ETFs Could Surprise]

“Investors seem to be reacting to the relative value in the space. Stocks in this group are trading with an attractive average yield of nearly 4% and a reasonable price (just 1.5 times book value). Given our outlook for stabilization in oil by year’s end, current prices may represent good long-term value,” said BlackRock Chief Investment Strategist Russ Koesterich in note posted by Amey Stone of Barron’s.

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