The Energy Select Sector SPDR (NYSEArca:XLE), the largest exchange traded fund dedicated to energy equities, continues slumping. Off more than 1% over the past week, XLE is flirting with a year-to-date loss of nearly 15% and recent action in the benchmark equity-based energy ETF could bring some critical price levels into play.
The challenge for energy equities is that some oil market observers see more declines coming for crude. Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices.
At least one analyst “suggested XLE’s slide could temporarily stall near the $62-$63 region, which is 20% above the 2016 low and 20% below the 2017 high. Additionally, this area coincides with a 23.6% Fibonacci retracement of the fund’s decline from its 2014 top to its 2016 bottom, as well as peak front-month put open interest of more than 20,500 contracts at the July 62 strike,” reports Schaeffer’s Investment Research.
Investors considering ETFs such as XLE and rival ETFs such as the Fidelity MSCI Energy Index ETF (NYSEArca: FENY) and the Vanguard Energy ETF (NYSEArca: VDE) need to again monitor oil production data and credit issues at smaller energy producers.
Obviously, production is a key element in the decision-making process regarding energy investments. Currently, oil investors face conflicting reports regarding output. For example, Venezuela’s crude output is plunging to multi-year lows while Algeria is looking to boost production.
“Drilling down, the fund’s July 66 call was the most active option over this time frame, with 21,852 contracts traded. Data from the major options exchanges confirms noteworthy buy-to-open activity here, meaning options traders are betting on XLE to break out above $66 by front-month options expiration at the close on Friday, July 21,” according to Schaeffer’s.
Related: Oil Exploration, Production ETFs May Be Turning New Chapter
Investors pulled nearly $91 million from XLE in the second quarter, but year-to-date, the ETF has seen inflows of $858.6 million. To start the third quarter, XLE has added $18.2 million in new assets.
On a technical basis, XLE still looks worn out. The ETF has not closed above its 200-day moving average since April and has not notched a close above its 50-day line since early this year.
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