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Energy ETFs: Worse Before It Gets Better

This article was originally published on ETFTrends.com.

The Energy Select Sector SPDR (XLE) , the largest equity-based energy exchange traded fund, and rival energy ETFs are getting blasted this month as energy careens toward being 2018's worst-performing sector.

After getting pounded on Monday, XLE is off 13.62% this month and its fourth-quarter loss has swelled to over 25%.

Earlier this month, the energy sector experienced a short-lived rally after lengthy Organization of the Petroleum Exporting Countries (OPEC) discussions finally came to a conclusion, resulting in a larger-than-expected production cut that sent oil prices higher

OPEC and associated partners agreed to cut 1.2 million barrels per day with OPEC being responsible for 800,000 barrels. The latest production cut came as a surprise to many oil analysts as initial estimates were slated at 1 million barrels per day and 650,000 barrels per day for OPEC.

“TradingAnalysis.com founder Todd Gordon says years of underperformance in the XLE energy ETF against the S&P 500 have made the sector susceptible to greater swings to the downside,” reports CNBC.

Can History Repeat?

Previous oil bear markets also weighed on broad equity benchmarks, but when the broader market recovered, the energy sector joined in.

“The 2015 sell-off came, both markets were hit,” Gordon said of the S&P 500 and XLE in an interview with CNBC. “As the S&P eventually found its footing, it broke to new highs here but you’ll notice that the XLE also started to recover off the lows but did not come close to eclipsing the 2014 high, a major warning sign.”

XLE currently resides more than 25% below its 200-day moving average and more than 32% below its 52-week high.

For the week ended Dec. 20, investors pulled $456 million from XLE, a total surpassed by just four other ETFs.

Rivals to XLE include the Vanguard Energy ETF (VDE), iShares U.S. Energy ETF (IYE) and the Fidelity MSCI Energy Index ETF (FENY).

For more information on the oil market, visit our energy category.