Sunday, March 23, 2008

WTF Among the Energy Stocks?

In my recent posts, we've explored money flows into the Materials, Industrials, Consumer Discretionary, and Consumer Staples sectors. Now it's the turn of the Energy stocks. Above we see the Cumulative and Five-Day Flows for five highly weighted stocks within the sector, plotted against the Energy ETF, XLE. The five stocks included in the analysis are XOM, CVX, COP, SLB, and OXY.

What we see off the bat is that Energy issues have been relatively stronger than other sectors, thanks to commodity strength. Indeed, their chart looks more like the chart for the Materials sector than most of the others for this reason. Note also that the recent market weakness failed to bring XLE below its January lows. This non-confirmation, which we've observed among the other sectors as well, has played an important role in the market's very recent bounce.

That having been said, we did not see a bounce in XLE late last week, owing to the commodity selloff. Moreover, Cumulative Money Flow for the Energy stocks has been in a steady downtrend since August, 2007. Considering the historic strength in oil prices over this period, XLE performance has been muted. Indeed, it appears that money has been systematically coming out of this sector over time.

The five-day flows show that particularly little capital flowed into the sector during the bounce from the January lows. That has set up the current weakness. While the sector is range bound and the non-confirmation of the January lows was encouraging, there is not yet evidence of significant funds flowing into energy issues that would power an upside breakout.