The energy sector has seen a recent turnaround, with its relative strength rising from last place to number six. Historically, this level of improvement has led to higher prices over the next four weeks in the majority of cases since 2000. Internal readings within the sector, such as breadth and advance-decline, are also showing signs of improvement. These positive developments are occurring during the bullish March-April time frame, with April historically bringing higher prices in the energy sector about 65% of the time, with an average gain of over 4%. Over the last 25 years, prices have risen 72% of the time from March 23rd through June 9th.
Technically, the XLE Energy Sector ETF is showing signs of a potential rally. The weekly chart shows a consolidation that has developed over the past 18 months, with a breakout potentially projecting a rally to 110, which is 20% above the last quote. The monthly graph indicates that this resistance level dates back to 2014. While there is falling relative strength, there are series of higher weekly momentum lows, which is a bullish development. The XLE Group Monthly Histogram shows the probability of higher prices, percentage price change, and expected return.
When it comes to individual stocks in the energy sector, only about a third are currently outperforming. The top three stocks to consider for potential gains this spring are St. Mary (SM), Natural Gas Service (NGS), and Marathon (MPC). These stocks show higher lows in momentum on both a weekly and monthly basis. St. Mary is showing relative strength improvement on a weekly basis, while Natural Gas Service and Marathon are displaying new relative weekly highs. All three stocks are likely to continue adding to their price gains.
Overall, the energy sector is showing signs of strength and potential for further gains in the coming weeks. The positive developments in internal readings and historical trends suggest that there may be opportunities for investors to capitalize on the sector’s recovery. With technical indicators also pointing towards a potential rally in the XLE Energy Sector ETF and select individual stocks, investors may want to keep a close eye on this sector for potential investment opportunities.
