Strong Correlation:
The energy market has been a stellar performer YTD. Should one abandon their bullish thesis after one soft session? That is the conundrum investors in the sector are asking themselves this evening. On a YTD basis, it is still the clear leader, with the XLE up more than 30% (the more “equal-weighted XOP is up nearly 40% in ’21 so far). For sure the easy money in the sector has been made, but let’s remember that trends tend to last longer than we think, and overshoot to both the up and downside. For this reason, I think one has to give the benefit of the doubt to the group here. Was the volume thrust Thursday, simply a spooked algo, or is it the start of an exodus from the arena. Of course, no one knows for sure, but the chart below shows the strong parallel between WTI crude and the XOP, as they trade in lockstep. Each of the last 3 years WTI crude has met resistance in the upper 60s PRICE range, and remember this instrument traded to negative $37, so it has made an enormous move. Do not try and predict, listen to what the chart conveys.