XLE, the SPDR Energy ETF, is the most popular energy ETF as it has nearly $14 billion dollars in net assets. After falling by 50% from mid-2014 to early 2016, XLE has rallied by 30% since January 22nd. XLE is made up of of 39 stocks but is dominated by the the largest energy companies in the US. The top 10 holdings make up 67% of the portfolio and the top 3 holdings make up over 42%. It is the top three holdings that we want to focus on today.
The largest holding in XLE is Exxon Mobile. It makes up 19% of XLE. Chevron is the second largest at 15% and Schlumberger is the third largest as it accounts for 8.5% of the ETF. What is interesting, and ultimately what we believe will drive the performance of XLE in general, is that all three of these stocks are challenging a bearish relative performance resistance line that has been in place for the past three or four years.
Take Exxon for example. Since 2012, Exxon has failed to break through a bearish resistance line three times. However, it has recently broken. While we wouldn’t call this a decisive change in trend yet, it definitely is the most bullish pattern that Exxon has shown in several years.
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XLE – Exxon, Chevron, Schlumberger
A similar story holds for Chevron. For the first time in four years, Chevron has been able to peak above the bearish resistance line. Again, it is too early to call if this is a trend change.
Finally, we have Schlumberger . Schlumberger has the best looking chart out of the three of these stocks. It looks like a base has been formed over the past two years or so. Schlumberger has broken through the bearish resistance line for the first time since 2014. We would note, however, that if Schlumberger ends up failing at this level and turning back over this would be a very bearish sign. What now looks like support would become resistance and that resistance would be quite formidable for years to come.
All in all, XLE will most likely go the way of Exxon, Chevron and Schlumberger. If we are at an inflection point and the bearish trends that have been in place for years turn to neutral or even positive trends then XLE is primed to outperform the MSCI All-Country World Index. However, if this turns out to just be a head fake then XLE will probably continue to underperform for quite a while.