ETF Trends
ETF Trends

With oil prices continuing to reside near 12-year lows, pressure is mounting on equity-based energy exchange traded funds such as the Energy Select Sector SPDR (NYSEArca: XLE). XLE, the largest equity-based energy, fell more than 2% Wednesday on its way to a 52-week low.

Last year, Exxon and Chevron, which currently combine for 35 percent of XLE’s weight, were two of the worst-performing stocks in the Dow Jones Industrial Average, helping make XLE the worst performer among the nine sector SPDR ETFs.

Bright spots have been few and far between for equity-based energy exchange traded funds this year and for all the struggles the encountered by the sector, it still is not inexpensive relative to the S&P 500. In fact, the energy patch is downright pricey compared to the broader market. This after a spate of spending cuts that have not been met with widespread enthusiasm among investors. [Oil ETF Dividends Appear Safe…Sort Of]

In terms of XLE’s price action, it is worth noting the ETF, which debuted in mid-1998, has been down similar roads in the past. For example, Schaeffer’s Investment Research notes that when XLE peaked around $90 in 2008, the ETF proceeded to lose half those gains, falling to $45 in just a few months. That scenario replayed with XLE’s most recent peak. XLE’s 2014 peak around $100 has been followed by a quick 50% retracement, last seen at $50.78, according to Schaeffer’s.

The low oil environment may persist as the Organization of Petroleum Exporting Countries projects demand for its crude to remain lower in 2020 than in 2016 as rivals remain resilient despite the depressed prices.

“XLE’s Schaeffer’s put/call open interest ratio (SOIR) of 0.70 sits in the lowest percentile of its annual range, indicating short-term speculators are more call-heavy now than at any other point in the past year. Meanwhile, the ETF’s 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.61 sits lower than 98% of all similar readings taken in the last 12 months. In other words, puts have rarely been bought to open over calls at a slower pace over the previous 52 weeks,” according to Schaeffer’s.

Energy Select Sector SPDR

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.