The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is up more than 11% year-to-date, making it one of the more impressive performers among the sector SPDR ETFs.
The third quarter is historically unkind to the energy sector, but some industry observers believe the recent pullback in crude prices is not a cause for alarm and that there is still upside available with some of the big-name integrated oil companies held by ETFs like XLE. However, some technicians see XLE as poised to keep delivering.
With the arrival of the third quarter, an interesting dynamic is at play. Energy stocks historically are slack performers over the next several months while oil is one of the third quarter’s best-performing commodities on a historical basis. 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).
“The XLE has now fulfilled the requirement for a breakout trade set up as it has closed above the key $69 pivot after the key date of July 4, following the price extreme on July 1. Time cycles are now signaling higher prices into July 18 and if it continues higher from there, August 9 and possibly even September 8,” according to TradingFloor.com.[related_stories]
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.
“The plan is to buy the XLE above $69 aiming higher into the $73 and $77 levels. The stop can initially be placed at the $66 level,” adds TradingFloor.com. “Fifth waves are tricky in the sense that they are often either short or long, sluggish or strong and explosive. We should have been able to rule out the short alternative, but it could still be a sluggish one. The main risk to this trade view, however, is a weak oil price and general stock market weakness which would most likely weigh on this ETF as well.”
Energy Select Sector SPDR