This article was originally published on ETFTrends.com.
To say the Energy Select Sector SPDR (XLE) , the largest equity-based energy exchange traded fund, is on a tear may be an understatement.
Although XLE closed modestly lower last Friday, the ETF still finished the week with a gain of just over 2% and is higher by nearly 7% this month. After ranking as one of last year's worst-performing sector funds, XLE is higher by more than 8% year-to-date.
A combination of diminished global output and rising global demand have helped reduce the global supply glut that dragged on oil prices for years. Production cuts from the Organization of Petroleum Exporting Countries and their allies have largely contributed to the cut in supply. Meanwhile, expanding economies around the world has bolstered demand for raw materials such as crude oil.
Last Thursday, XLE “notched a nearly three-year peak of $78.83, poking north of a former ceiling in the $78 area, which contained rally attempts in late 2016 and January 2018. After jumping 9.5% in the month of April, the XLE is up another 6.3% so far in May, and is pacing for its best quarter since late 2011,” according to Schaeffer's Investment Research.
XLE's Double-Digit Winning Streak
It has been a while since XLE has notched a double-digit daily winning streak, but history says caution may be the best advice over the near-term.
“July 2006 was the only other time ever in which XLE shares rallied for 10 straight days. Specifically, the fund surged 13.29% in that time frame. However, that surge preceded an 11.66% pullback over the subsequent three months, according to data from Schaeffer's Senior Quantitative Analyst Rocky White,” notes Schaeffer's.
Technological improvements and greater efficiency has helped U.S. shale producers pump out crude oil at lower margins – some say it is now profitable at less than $50 per barrel. Additionally, companies are finding easy access to credit and private-equity firms have bought out struggling companies, which have kept production flowing.
“It should be noted that XLE is coming up on a historically bearish time of year. Since inception, the fund has averaged a loss in the months of June, July, August, and September,” according to Schaeffer's.
For more information on the oil market, visit our energy category.
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