Is The Energy Sector A Buy Right Now?
A Data-Driven Approach
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The Israel-Iran war has gotten traders excited about the energy markets again, especially with the US now doing a tactical strike on Iran.
In this article, we’ll see if the energy sector is a good bet right now.
Trump’s statements on Iran’s weapons of mass destruction are rhyming with a speech given by President Bush in the early 2000s, who spoke about weapons of mass destruction in Iraq.
Back then, energy stocks saw an incredible run-up shortly after.
Today, investors appear to be anticipating a repeat.
The 10-day advance/decline (A/D) ratio for energy stocks has surged above 2 for the 4th time this year.
This means that over a 10-day span, there were 2x as many advancing stocks as declining stocks in the XLE.
That's a big change from when the opposite condition existed a few weeks ago.
This chart shows how XLE performed after the 10-day A/D ratio cycled from below 0.5 to above 2 within 15 sessions (like we saw recently).
The fund continued to rise about 75% of the time over the next 2 weeks, but many of those failed.
There was a steady drop in the win rate over the following 2-3 months - not a particularly reliable bullish signal.
Today’s XLE rally has pushed many more stocks above their 50-day moving average.
After fewer than 5% were trading above their 50-day MA in April, now more than 95% have climbed above.
In the next section, we’ll take a look at how the XLE sector performed after such a development. We will also be providing you with 7 other key indicators (with their returns and win rate) that are sending an important message for the XLE sector. Lastly, we’ll also provide you with XLE’s seasonality and an overall conclusion on where we currently stand.
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