Once Again, Trouble Lurks For Energy ETFs | ETF Trends

Count the energy sector among the groups being stung by the ongoing US/China spat. For much of this year, the energy sector has been a solid group, but recently, some of that strength has evaporated. The Energy Select Sector SPDR (NYSEArca: XLE) is lower by 3.57% over the past week and while the largest energy exchange traded fund is still up 11% year-to-date, it is in danger of entering another bear market.

Historical trends also indicate several equity-based energy ETFs also perform poorly late in the second quarter and into the third quarter. Additionally, several of the S&P 500 that typically perform poorly in May are energy stocks.

“Energy stocks are on the cusp of falling into a bear market after a sudden escalation in the U.S.-China trade dispute dragged the stock market lower on Tuesday,” reports CNBC. “The S&P 500 energy sector finished the day down 18.7% below its 52-week high. It was the only sector to end the day in correction territory, meaning it closed 10% or more below its 52-week high.”

Another Idea for Energy Sector

Aggressive traders looking to bet on further declines for the energy sector may want to consider the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY). RY seeks daily investment results equal to 300% of the inverse of the daily performance of the Energy Select Sector Index, the same index XLE tracks.

What makes ERY alluring for aggressive traders is that the energy sector is showing some technical weakness and currently not looking like a group to buy on a technical basis.

“Tuesday’s slump highlights the energy sector’s continued struggle to break out amid uncertainty around future oil prices and global demand for crude,” according to CNBC. “The energy sector is up 11% this year, outperforming utilities, materials and health care but trailing high fliers like technology and consumer discretionary stocks by a wide margin.”

Further fueling the retreat in the energy markets, the U.S. is set to end its Iran sanction waivers program that allowed eight countries, including China and India, to import Iranian oil temporarily. However, Saudi Arabia stated it would increase its share of exports to make up the difference.

“Wild oil prices swings last year kept many investors on the sidelines,” according to CNBC. “The volatility made it difficult to predict the fortunes of oil companies, so the energy sector remained stuck in a game of wait-and-see.”

For more information on the energy sector, visit our energy category.