Price Action & Performance
XLE has shown signs of nascent bullish reversal since putting in a near-term low on June 14th and remains in that pattern as we start August. Relative to the S&P 500 the sector remains in a longer-term underperformance trend, but it looks like the table is set for upside mean-reversion. Oscillator work has improved with the MACD in positive territory and generating a fresh buy signal. Internals have shown some improvement with the % of stocks above their 50-day moving average moving from a intra-month low of 35% to a reading of 68% as we enter August. We are expecting the XLE to retest its April price high ahead of the coming election.
Economic and Policy Drivers
The Sector has bounced on optimism that Donald Trump will regain the presidency. A Republican administration is perceived as bullish for legacy energy producers which comprise the lion’s share of the GICS Energy Sector. Concerns of a global supply glut remain amidst societal trends away from fossil fuels (vehicle electrification, alt. energy infrastructure, ex-US ESG initiatives) and ever more readily available alternative energy streams coming online. Given those longer-term constraints, we see this position as a tactical opportunity. Negative expectations on inventory build-ups also lower the bar for positive surprise, and, against the backdrop of intermediate term oversold for both Crude and Commodities more broadly, we continue to like the tactical backdrop for owning XLE through August.
In Conclusion
We see the rotation into cyclical sectors as having more ramp to go. Our Elev8 Sector Rotation Model Portfolio starts of August with an OVERWEIGHT allocation to XLE of +2.28% above the benchmark S&P 500.
Chart | XLE Technicals
- XLE 12-month, daily price (200-day m.a. | Relative to S&P 500)
- Relative Strength Curve is now far below downtrend resistance and showing some positive signs of reversal. This has triggered a tactical buy signal from the MACD oscillator and keeps us long for August
- A move above resistance at the $93 level would be interpreted as bullish confirmation, we enter August at that threshold
