Major Divergence Between Energy Stocks and Crude Oil

Something we have been noticing for the last week is the significant divergence between energy stocks and crude oil. Technician and fund manager J.C. Parets is all over it today with his premium “Chart of the Week” post. Here is J.C.’s chart of the week post as a special treat for Energy & Gold readers:

 

Back in January, Energy Stocks put in their lows on both an absolute and relative basis. Whether you’re looking at the big Integrated Names like Exxon and Chevron, or the Services Companies like Schlumberger or Halliburton, or even the Explorers and Producers, they all bottomed in January, a month before Crude Oil finally put in its low. Energy stocks also bottomed first on a relative basis when compared with the S&P500.

Today we are looking at the current implications of this particular leadership in the stocks relative to the commodity and the direction in which they are heading:

Here is a chart of the Energy Sector Index Fund $XLE in red with the price of Crude Oil overlaid behind it in Blue. Notice how the energy stocks put in their bottom in January while Oil didn’t bottom until February. Notice the higher low in $XLE while oil was still falling:

Energy_vs._Crude_Oil

At this point, Energy stocks appear to be putting in a lower high while Crude Oil has continued higher towards our $50 target.

The next chart shows the same Energy Sector Index Fund $XLE, but this time relative to the S&P500. So basically, the red line represents the relative strength in Energy stocks. Once again, the blue line show the price of Crude Oil:

 

Energy_SPY

We can see a similar phenomenon here where Energy stocks bottomed on a relative basis in January, while Crude Oil didn’t put in its bottom until February. The lower high being made here in Energy on a relative basis is actually more pronounced than the XLE lower high itself.

To me, it appears that Energy stocks are leading oil both higher and lower. So this is one we obviously want to watch.

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