The Energy Select Sector SPDR (NYSEArca: XLE) and rival equity-based energy exchange traded funds have been decent performers and that bullishness is poised to increase if the ETFs’ charts are an accurate indication.
After two years of dismal performances, the energy sector, the seventh-largest sector weight in the S&P 500, is on the mend. Making the sector’s rebound this year all the more impressive is that it comes against the backdrop of still low oil prices, little help in the way of significant production cuts and massive spending reductions by global oil majors.
Related: Bears Look to Feast on These 8 Energy ETFs
There are plenty of factors to consider before coming to the conclusion that oil and the related exchange traded products are completely out of the woods. Earlier this month, Saudi Arabia and Iran failed to find common ground during the oil freeze talks in Doha, Qatar.
Rivals to XLE include the Vanguard Energy ETF (NYSEArca: VDE), iShares U.S. Energy ETF (NYSEArca: IYE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY).
Investors should be aware that XLE and its aforementioned rivals allocated hefty portions of their lineups to the largest oil companies, including Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) along with Schlumberger (NYSE: SLB), the largest oilfield services provider. In some cases Exxon Mobil and Chevron, the two largest U.S. oil companies, combine for up to a third of these ETFs’ weights.
[related_stories]What makes that trait important is companies like Exxon and Chevron have taken steps to conserve cash as oil prices remain well off recent highs. That could mean some energy industry consolidation is on the way. As some industry observers, it is usually during times of tumult for the sector that oil majors are born and get bigger.
“If two nested Cup-and–Handle patterns was not enough to get you excited, how about another one? The big red Cup and Handle finished forming last week. It is triggering now with the move out of the Handle. This one targets a move to 86,” according to Investing.com regarding XLE’s chart setup. “The Handle in this one pulled back to the 50- and 200-day SMAs before reversing. That Golden Cross itself is a bullish event too. Momentum held in the bullish zone on the pullback and the MACD is starting to level.”
Related: 4 Energy ETFs may be at Near-Term Tops
On Monday, crude oil strengthened after Goldman Sachs analysts Damien Courvalin and Jeffrey Currie said that a decline in production due to unexpected disruptions, along with sustained demand, have created a “sudden halt” to the output surplus, reports Serene Cheong for Bloomberg.
For more information on Energy ETFs, visit our Energy category.
Energy Select Sector SPDR
