Thursday was a bad day for stocks, but oil did not get the memo. The United States Oil Fund (NYSEArca: USO) climbed nearly 2% to its highest levels of the year, finishing April with a gain of nearly 20%.
Oil’s April surge lifted the Energy Select Sector SPDR (NYSEArca: XLE) to a gain of almost 6% and the recent bullishness for the largest equity-based energy exchange traded fund is chasing bearish options traders.
“On Wednesday, when bulls in the options for the XLE outpaced bears by a ratio of 2 to 1, a trader sold 5,000 contracts of 75-strike puts expiring in June for a price of 45 cents each. As this was a closing trade, the trader is indicating that he or she no longer expects the XLE to see a price below $75-or nearly 10 percent lower than where the ETF finished the day on Wednesday-any time in the next two months,” according to CNBC.
After tumbling 8.7% last year, making it the worst of the nine sector SPDRs, XLE is up 5.1% this year, making it the second-best SPDR behind the Health Care Select Sector SPDR (NYSEArca: XLV).
Even with last year’s struggles, the energy sector is still expensive on valuation and perhaps even more so when considering the dismal profit and revenue expectations for the group. [Energy ETFs Still Expensive]
“Forward revenues is at a six-year low, and forward earnings is at an 11-year low. Both are also down the most among the 10 S&P 500 sectors over the past month, three months, and six months. For the next 12 months, forward revenues is expected to fall 18.6%, and forward earnings is expected to decline 40.1%–lowest among the 10 sectors and the only sector with negative readings. Analysts expect annual earnings to fall 58.0% in 2015 after rising 1.0% in 2014,” according to a note published by Yardeni Research on April 22.
XLE bulls got some welcomed news earlier this week when the ETF’s largest holding, Exxon Mobil (NYSE: XOM) raised its dividend. That extended Exxon’s dividend increase streak, quashing fears that the largest U.S. oil company would respond to lower prices by foregoing its dividend aristocrat status. [Exxon Stays in Dividend ETFs]
Schlumberger (NYSE: SLB) and Kinder Morgan (NYSE: KMI), XLE’s third- and fourth-largest holdings, respectively, have also recently boosted payouts. Exxon, Schlumberger and Kinder Morgan combine for 27.2% of XLE’s weight. The ETF has a dividend yield of 2.35%.
Energy Select Sector SPDR