Market Insights / Commentary

Following the money in energy, Part I

By David Russell

All of a sudden, energy is rallying. Not only does the sector’s 7 percent gain in the last month dwarf the S&P 500’s 2.7 percent run over the same period. It’s also flashing some other positive signals that may signal a broader turn has occurred.

First, breadth is strong and getting strong. Almost four-fifths of the companies in the SPDR Energy Fund (XLE) outperformed the S&P 500 in the last month. But in the last two weeks, over 90 percent of its members have led the broader market. That suggests a quickening stampede of dollars into the space.

The chart of the same XLE may offer fodder to the bulls as well. Its 50-day moving average rose through its 200-day MA in early November, a so-called “Golden Cross” bullish reversal pattern. And, its much longer-term 500-day MA is also rising for the first time in almost two years. Has a turn finally occurred?

This is the first installment in a series on the Energy Sector. Next time we’ll look at a group of shipping companies behind an major shift in global hydrocarbon supply that will likely catch many Americans by surprise.

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