Energy Exhausted?

Let’s first give credit where credit is due. Energy has been a magnificent place to be for the last 2 years. Not only is it uncommon for a sector to record back-to-back years as the best of 11 major S&P groups (since 2008 we can see on the chart below from Novel Investor only tech registered consecutive top of the leaderboard advances in 2019-20), but the way it did it in such a powerful fashion must be commended. The annual gains of better than 50 and 60% in 2021 and 2022 for the XLE were both the strongest returns dating back to 2009 when technology jumped 62%. As a technician, we believe strength begets strength but this type of potency itself leans toward at least some mean reversion. The XLE is higher by 2% YTD so far and could be building a handle on its cup base today after a nice reversal in XOM Tuesday. But on its MONTHLY chart, it could be putting in a rough triple top in the 90-100 level from the 2008, 2014, and present timeframes. The most bullish theme I could see here is still looking for the space to return to its 8-9% historical S&P weighting. The road could be rocky on that path beforehand.

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