Energy Sector Dominates Bullish Scan

When I ran my nightly scans last evening, one sector completely dominated the bullish scan: the energy sector.
In fact, there were 18 stocks and ETFs from the energy sector on the bullish list last night, out of only 31 total names.
I looked at the charts for each of the names on the bullish list and most of them are similar at this point. Rather than analyze the chart of one stock, I thought taking a look at the chart of the Energy Select Sector SPDR (NYSE: XLE) would serve a greater purpose.
The daily chart shows that there is a lot going on here. We have a downward sloped trend line that connected from September and December, but that was recently broken during the February rally.
The fund has since formed an upward sloped trend line that connects the lows from January, and that trend line is currently sitting right around $77. That’s just a few percentage points below the current price level.
We see that the fund is oversold at present based on the slow stochastic readings, but the readings just made a bullish crossover. It is also worth mentioning that the 50-day moving average seems to be acting as support now.
If you look at the red circles, you can see that the moving average has acted as resistance in September, and again in early November. The fund was able to rise above the moving average in late November, but it wasn’t able to remain above it and eventually fell over 18% in just under three months.
Another interesting note regarding the Energy Select Sector SPDR is that the sentiment toward this ETF saw the biggest shift in investor sentiment from January to February. Looking at the average sentiment composite rating for the top ten holdings of each of the 10 Select Sector SPDR ETFs, the reading in February jumped from 7.7 to 9.1 to 9.1 in January.

Sector Sentiment Composite January Sentiment Composite February Difference
Energy 7.7 9.1 1.4
Consumer Staples 8.88 10.05 1.17
Industrials 9.1 10.24 1.14
Healthcare 8.38 8.73 0.35
Materials 10.51 10.55 0.04
Consumer Discretionary 9.84 9.55 -0.29
Technology 10.54 10.14 -0.4
Financials 9.1 8.1 -1
Utilities 11.67 10.6 -1.07
Telecom 16.62 11.58 -5.04

If we go back further, the reading in September was 9.3. It dropped for three straight months from September through December and has risen in each of the last two months. The December reading was the lowest, at 7.3.
Remember, a high sentiment composite reading means that investors are more bearish than bullish. In other words, investors were more bearish in September than they were in December and more bearish now than in December.
Perhaps investors thought the fall in oil prices was overdone in December. Now that the price has a jumped a little in 2015, perhaps they think it is due for another downturn.
Personally, I think the Energy Select Sector SPDR looks poised to move higher over the next six months or so.

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