Back in January and February when the crowd was extremely bearish on crude oil we witnessed a striking bullish divergence in the strength of energy stocks. This relative strength from energy stocks proved to foreshadow the bottom that crude oil would put in place during March. However, since the March low in crude we have seen energy stocks vastly underperform crude oil:
WTI crude oil has outperformed XLE by a ratio of more than 4-to-1 since the March low. To be certain, this is not a positive phenomenon in terms of the sustainability of the crude oil rally. Instead, it is much more likely that crude futures are seeing the tail end of a short covering rally that is likely to peter out shortly while energy stocks are already pricing in a rangebound trade between $50 and $65 for the foreseeable future.