Oil prices have doubled off their recent lows helping make energy the second-best performing sector in the S&P 500 this year while boosting exchange traded funds such as the Energy Select Sector SPDR (NYSEArca: XLE).
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.
Some market observers see the upside continuing for XLE.
“I don’t think the run is over,” Rich Ross said Wednesday on CNBC’s “Trading Nation.”
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.
Exxon and Chevron are two of just 10 members of the Dow Jones Industrial Average that are up at least 10% this year.
Oil majors have tightened their belts, reducing costs by laying off thousands of workers and halted many new projects. Large integrated oil companies are expected to hold up better than drilling stocks as these giants have both upstream exploration and production, along with downstream refining operations.
“Looking at a long-term chart of the XLE ETF that tracks the energy sector, Ross noted a recent break in a downtrend line that’s been in place since 2009. “That’s your first sign that the trend is turning,” Evercore ISI’s head of technical analysis said. Furthermore, he pointed to a big head and shoulders, which he expects to serve as a strong base of support,” according to CNBC. http://www.cnbc.com/2016/06/08/chart-points-to-significant-upside-for-energy-technician.html
For more information on Energy ETFs, visit our Energy category.
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.