Chart Of The Day: Here’s Why Energy Stocks Could Break Out Right Now

If you’ve seen sizable returns in 2014 you’ve either picked the right stocks, or more importantly, you’ve been investing in the right sector.

The two strongest sectors of the year, so far, have been energy and utilities. The largest utilities exchange-traded fund, $XLU, is up 13% this year. The largest energy ETF, $XLE, is up nearly 4%. Why are these the two strongest sectors of the year? It could be for a number of reasons. Some investors have cited the importance of dividends. Others have mentioned a rotation out of momentum stocks and into value oriented stocks.

$XLE hit a new all-time high on Wednesday at $91.96/share and that is remarkable. Especially when you see the chart we shared below. In-fact, this is the type of signal to look for in weak or turbulent markets — find the stocks that are holding up the best. The five largest holdings in the XLE ETF are Exxon $XOM, Chevron $CVX, Schlumberger $SLB, Occidental Petroleum $OXY and EOG Resources $EOG.

Chart of Day 1 = $XLE Energy which closed at a new all time high http://stks.co/b0Rnf

— 361 Capital (@361Capital) Apr. 16 at 04:42 PM

 

On StockTwits, a specific chart caught our eye about the energy sector. It shows the ratio between $XLE and the S&P 500. Since 2011, this ratio has been in a huge downtrend. Meaning the S&P 500 has been outperforming the energy sector for three years now. But that might have totally changed today, as that ratio broke through the huge downtrend:

One reason to be bullish energy is the relative strength of $XLE versus $SPY on the ratio chart http://stks.co/g0VhB

— Serge Berger (@steadytrader) Apr. 16 at 03:01 PM


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