XLE Repeats XLF History

Almost exactly one month after the XLF exploded off of its July 15th low, the XLE has exploded off of its August low. The chart patterns are almost identical so far.

The XLF’s move peaked only five trading days after it began.

The XLE has blasted straight up three days in a row now.

Both moves off of the lows are pretty blatant short-squeeze action.

Of course, the energy companies routinely make billions in profits while the financials routinely destroy billions, but that should be priced in. The XLE should be able to run higher, but I am skeptical that this move will have any more staying power than the XLF’s.

It’s the sector-rotation, short-squeeze-rally market, right?

7 Responses to “XLE Repeats XLF History”

  1. Kailash says:

    Hi Matt — there are of course solid foundations for a continued rise in the cost of fossil fuels, as they’re in known short supply. Anticipated future levels of economic activity is a major moderator, but the causal arrow is a loop, as energy costs in turn are a major input to the speed of the economy. Energy will get its share of the value created by any growth in any economy worldwide, so in the long run it’s a bull market. We may be seeing an odd bootstrapping effect: oil gets too expensive, the economy starts failing, oil demand and prices fall, the economy looks better, oil demand and prices rise … It’s the logic of a doorbell, and a recipe for volatility.

  2. Paul says:

    For the overall rally to last past next week will be difficult; I don’t think lasting more than two weeks is even in the cards. What will be very interesting is to see where XLE (and XLB and XME) peak. It will likely be below June. So we will see different sectors making low highs and lower lows, which isn’t a bull market in anyone’s books.

    USO is down today, so I’m going to buy the weakness there (rather than sell the strength in other such as XLF), unless things really look ridiculous.

  3. after says:

    I have mixed feelings about oil/energy shares now. I saw something about how this is the biggest week of gains or might be the biggest week of gains for commodities in a long long while…so with likely volatility everywhere, maybe these trends are going to last for periods of time that wil get more compressed as we go forward. So maybe the energy rebound is destined to be about done for now ?
    That said, on the short side, while i eventually was successful with a DUG trade once (i had to have patience) I usually think there has got to be something better to short than oil/energy shares pretty much always.

  4. Larry says:

    Kailash, commodities are the last asset price to rise and fall at the end of a monetary inflation bubble.

  5. Paul says:

    I was going to go long XOM at $80. They are making tons of money. They are probably priced well for oil $100, but if oil drops to $70… Maybe I’ll just wait.

    I did get into GS @ $160. We still haven’t seen the anticpated negative quarterly results that everyone seems to be predicting, so I don’t see it bottoming before then.

  6. Paul says:

    VIX @19.09. If the Oct options catch up, I’m buying some calls.

  7. Kailash says:

    Larry — true, as a shelter against inflation. This time, however, there are also new fundamentals at play, as the global human civilization is consuming raw materials and energy beyond what is sustainable in the long term. The commodity bull may last decades.