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4 Energy ETFs may be at Near-Term Tops

etftrends@etftrends.com (ETF Trends)

The energy sector’s rally on the back of rebounding oil prices has been undoubtedly impressive. Just look at exchange traded funds (ETFs) such as the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR (XLE) .

XLE, the largest diversified energy ETF by assets; and XOP, the largest ETF focusing on exploration and production companies; are up 17.6% and 31.9%, respectively, over the past three months. However, those rallies have some chartists concerned energy stocks and ETFs are vulnerable to near-term pullbacks.

Still, making the sector’s rebound this year all the more impressive is that it comes against the backdrop of still low oil prices, little help in the way of significant production cuts and massive spending reductions by global oil majors.

Related: Why Investors are Bearish on Oil ETFs

Oil majors have tightened their belts, reducing costs by laying off thousands of workers and halted many new projects. Large integrated oil companies are expected to hold up better than drilling stocks as these giants have both upstream exploration and production, along with downstream refining operations.

Concerns over Chinese oil demand also pressured prices. China revealed that its service activity expanded at a slower-than-expected pace, which has fueled pessimism over a potential slowdown in the second largest oil-consuming country in the world.

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“XLE ramped up 37% since the February lows and in the last few days, has begun to give back some of that gain. The weekly chart should see a resolution in one direction or the other fairly soon as price is reverting back down towards the rising trendline after failing to break above the supply band at $69 last week,” according to See It Market.

P lenty of skeptics remain regarding oil’s fundamental outlook. There might be something to that skepticism as many of the world’s major ex-U.S. producers of oil have not displayed a willingness to pare production. Even the output reductions in the U.S. have been modest. The good news is U.S. shale output is slightly declining, but challenges remain on the output front from OPEC producers.

Related: 32 Best ETFs to Track Crude Oil

“While the weekly has price still holding above the short term rising trend line, the monthly chart shows the XLE still within a two year declining channel despite the recent rally. In other words, the XLE still has not come out of the bear markets it’s been in since the price of oil hit its highs in March 2014. The monthly chart of XLE gives some perspective on just how precipitous the decline of oil prices off the 2014 highs has been. On a longer term timeframe, therefore, the XLE still has much work to do in order to break out of the said declining channel and back above the rising 13 year trend line,” adds See It Market.

Other ETFs with exploration and production exposure include the PowerShares Dynamic Energy Exploration & Production Portfolio (PXE) and the Guggenheim S&P Equal Weight Energy ETF (RYE) .

For more information on the Mexico ETF market, visit our Energy category .

SPDR S&P Oil & Gas Exploration & Production ETF

XOP
XOP

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.