The Energy Select Sector SPDR (NYSEArca: XLE) is on a torrid pace, having surged nearly 18% over the past quarter, but that does not mean the gains are over for XLE and rival equity-based energy exchange traded funds.
In fact, some traders are betting on more upside for the once downtrodden energy patch. As oil prices drag on oil company shares, the correlation between stocks and oil potentially weakened to some extent, which may have benefited broad benchmark investments in the event of further crude oil weakness.
However, with oil prices rebounding off 13-year lows, investors may be under-allocated toward the energy sector. Apparently, short sellers feel they have been too heavily allocated to energy stocks.
“Many short sellers backed away from mega-oil and large energy-related companies in the two-week period that ended March 15. The retreat was led by a drop in shares sold short in Exxon Mobil Corp. (NYSE: XOM), the world’s largest energy company, which declined 5.5 million, or 11%, to 46.4 million. Exxon’s share price has recovered somewhat from a brutal sell-off and is up nearly 8% so far this year to $84,” reports Douglas McIntyre for 24/7 Wall Street.
Oil ETFs were rallying after Russia and Saudi Arabia have reached a consensus to hold production steady ahead of an Organization of Petroleum Exporting Countries meeting in Doha, Qatar on Sunday to discuss a freeze in output, Reuters reports.