The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, ended April with a monthly gain of about 12%, good for one of the fund’s best monthly performances in several years. Some technical analysts believe energy stocks can continue marching higher.
Some market participants believe energy stocks will show more responsiveness to oil’s rally. Market observers and analysts argue that U.S. energy stocks are in a position to outperform broader equity markets this year, even if oil prices don’t move higher. The energy industry has grown more efficient after cutting costs in response to the plunge in crude oil prices in previous years, so they are now in a better position to improve revenue at lower oil prices.
“The XLE Energy ETF, banged up after years of low oil prices, has begun to show signs of life. It is up 10 percent in April, looking to close the month with its best gains since October 2015,” reports CNBC. “Over the past two weeks, the ETF has risen above its 50-day, 100-day and 200-day moving average.”
Near-Term Views for Energy
Market observers and analysts argue that U.S. energy stocks are in a position to outperform broader equity markets this year, even if oil prices don’t move higher. The energy industry has grown more efficient after cutting costs in response to the plunge in crude oil prices in previous years, so they are now in a better position to bolster revenue even at lower prices.
“I think the next stop for the XLE is going to be $78 which is the old highs we’ve tested twice before so I think we’re going to run up to that,” said Craig Johnson, chief market technician at Piper Jaffray, in an interview with CNBC.
XLE traded just over $74 on Monday. Seasonal factors could be a challenge to energy stocks and ETFs. For example, May historically marks the beginning the weak period for the energy sector and the third quarter is, historically, trying on the energy sector. With its renewed health, XLE could challenge those historical norms this year.
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).
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