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Once Sluggish Energy ETFs Gain Momentum

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This article was originally published on ETFTrends.com.

Energy stocks and the Energy Select Sector SPDR (XLE) , the largest equity-based energy exchange traded fund, are in rally mode. For its part, XLE is up nearly 7% over the past week, indicating that the fund is taking advantage of some favorable seasonality for the energy sector.

XLE tracks 32 energy companies from within the S&P 500 Index. Top holdings include well-known names such as Exxon Mobil (XOM), Chevron Corp ( CVX ), and ConocoPhilips (COP) . On a technical basis, XLE is looking more attractive.

After conquering its 50-day moving average, “XLE then continued on its tear in the following session by taking out both its 80-day moving average and the $70 level (a psychologically significant round number that marked the Feb. 27 intraday high, and also represents a 50% retracement of XLE's rally from its Aug. 21 closing low to its Jan. 22 closing high),” according to Schaeffer's Investment Research.

More Catalysts

Over the past 10 years, no sector is as correlated to inflation as is energy and the competition is not even close, according to S&P Dow Jones data.

Declining prices in recent years have prompted scores of major oil producers to rein in capital spending. 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.

Related: Energy ETFs: More Participation in Oil’s Upside?

“And while we're on the topic of XLE extremes, we would be remiss not to point out that, following a 17.68% decline in the reporting period ended April 1, short interest on the energy fund is now at its lowest point -- just 18.49 million shares -- since September 2009,” notes Schaeffer's.

Favorable seasonality is also playing a role in the resurgence of the energy sector.

“Since inception, the fund has delivered its biggest average monthly return of the year -- a gain of 3.4% -- during April,” according to Schaeffer's.

Rivals to XLE include the Vanguard Energy ETF (VDE), iShares U.S. Energy ETF (IYE) and the Fidelity MSCI Energy Index ETF (FENY) . Exxon is the largest holding in all of those ETFs with ConocoPhillips figuring prominently in the lineups of each of those funds.

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

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