Energy has been in the news plenty theses days as the price of crude which is still in the process of making higher highs and higher lows this year, even with the pullback this week with everything else. The chart below of WTI does show TWO failed cup bases recently above 73 and 75, and we know the best breakouts tend to work out right away. The old question arises does its strength speak for economic strength, or just supply and demand issues? Most likely a little bit of both, but the trend is still unquestionably higher. Of course that is a double edged sword as our domestic partners are benefitting, yet some of our enemies are doing the same, except not as much as in the past as sanctions are in place. Sure there will be other factors at play too, with Saudi Arabia news of the missing journalist. Although that country’s role on the influence of oil has diminished over the years, as their reserves are not what they once were and OPEC has lost credibility.
Relative Performance of Energy ETFs:
Below is a comparison chart of the three major ETFs in the energy world. It is interesting to view the tight paths all three tracked from the beginning of January through the end of April. That is when the similarities ended. From May onward the XOP began to behave much better than the other two. It could be as simple as knowing what is in your ETF. The XOP is a much more diversified fund, with its largest holding MUR, chart in next paragraph, comprising just 2% of the vehicle. Contrast that with the XLE, whose top two components XOM and CVX represent nearly FORTY% of the fund. There are other factors at play here with the dividend yield of the XOP offering just .64% and the XLE yielding 2.68%. On a YTD basis the XOP has advanced 10.7%, against a nearly a very pedestrian 1% performance for the XLE. I prefer capital appreciation, many others yield. On the WEEKLY chart of XOM it slumped 4.6% this week breaking BELOW a three week tight pattern, a formation that often witnesses explosive moves. The oil behemoth had CLOSED the 3 weeks ending between 9/21-10/5, all within just .32 of each other.
Energy continues to be one of the toughest to read of the major S&P sectors this year. Since the week ending 5/25 the XLE itself has witnessed 4 weekly losses of at least 3.5%. In that same time frame it has been unable to muster a weekly gain of 3%. Below is the chart of MUR and precisely how it was presented in our Wednesday 9/26 Energy Report. Unlike our FOUR shorts in this report, which all trade off their most recent 52 week highs between 19-30%, MUR has been stubborn in giving much back. It sits just 2% off most recent highs and is on a current 5 week winning streak, not a feat many can claim in this sector. The combined gain during the run has been 19% and all five have CLOSED in the upper half of the weekly range. Since the spring of ’16 its weekly chart has the look of a bullish inverse head and shoulders pattern.