Friday, March 09, 2007

Where's The Flow? XLE And The Energy Stocks

In recent posts, we've looked at Adjusted Relative Dollar Volume Flows for the materials and financial stock sectors. We've also seen how the flow data capture sentiment within the S&P 500 stock universe. In this post, we'll take a look at XLE, the Spyder ETF for energy stocks, and the dollars flowing into and out of five major stocks that comprise XLE: XOM, CVX, COP, SLB, and OXY. Hopefully this will help us answer the WTF question: Where's The Flow among energy issues?

The chart above shows XLE price (blue line) vs the 10-day average Adjusted Relative Dollar Volume Flow for the five energy stocks (pink line). As before, the red horizontal line is drawn at the zero level. Flow readings above zero represent above average dollar flows into the sector; readings below zero represent below average flows.

We can see, going back to 2004, that negative flow readings have tended to be buying opportunities in XLE. As we noticed with the other sectors, price peaks in XLE have tended to follow peaks in Dollar Volume Flow.

As with the financial issues, but not materials, dollar flows have been subnormal during this most recent market decline. Indeed, 13 of the past 15 trading sessions have shown below average dollar volume flows. What this suggests is that, even after the market drop, buyers are not rushing in to purchase energy stocks. We need to see a surge of buying to above average levels to signal that large market participants are viewing current prices as opportunities to accumulate these issues. Otherwise, we may be in for lower prices among energy shares.