Energy ETFs, Technology ETFs: Unleashing Inner Power, Staying With Tech

thesis

Energy Select Sector SPDR ETF (NYSEARCA: XLE) and Technology Select Sector SPDR ETF (NYSEARCA: XLK) as XLE showed the most opposites last year, which have not been seen in the last five or ten years It has been shown significantly. XLE’s record performance has moved from its mean reversion to the March/April 2020 Covid lows, accentuated by escalating geopolitical tensions and supply/demand volatility.

In contrast, the XLK’s ride has been tempered by an unlikely growth/technology assessment to peak in November 2021, coupled with the Fed’s commitment to fighting inflation and implementing its massive QT program.

However, corporate insiders on the XLE are expecting higher numbers above and holding 10Y highs. On the other hand, corporate insiders selling XLKs have leveled below 10Y lows. Does it make sense?

Our analysis of price action on the XLE and XLK shows that the insiders know something we don’t. It also confirms our findings on EPS growth trends in both sectors over the next five years. According to S&P Cap IQ data, the energy sector’s 5Y forward EPS CAGR reads -3.4%, while the technology’s 5Y forward EPS CAGR is estimated at 14.1%.

Accordingly, we rate XLE as a hold, as it is near the bottom. Next, if it forms another bull trap (signaling that the market is decisively rejecting further buying), we will reassess our position. We’d rate the XLK as a buy given the technology’s vastly improved valuation and low download process.

XLK/XLE: Inclined to increase bullishness

One way investors can see the dynamics of the price action between XLK and XLE over time is by using the XLK/XLE chart. We can also use it to pick up sector swings and high market price declines or high price structures.

As seen on the XLK/XLE long-term chart, the technology has shown consistent growth since its 2009 bottom. However, the March 2020 covid bottom led to a vertical rocketship-excess in 2020, reaching a bull trap in October 2020.

We’ve learned that such straight-forward pricing structures are often unsustainable. The Fed’s tech and growth bubble at Berkshire ( BRK.A ) ( BRK.B ) has done tech investors a big favor as it has sparked what CEO Warren Buffett calls a “snow bull.” So are we in the midst of a technological holocaust?

Absolutely. But, we also learned valuable lessons. What doesn’t kill you makes you stronger. So, we internalized our lessons and observed similar pricing structures on the XLK/XLE, but in reverse.

As seen above, XLE (1Y: 46.6%) has significantly outperformed XLK (1Y: -8.7%) over the past year. Also, note the close performance correlation between XLK and the SPDR S&P 500 ETF (SPY), which we’ll return to in a later discussion.

So, we’ve learned that vertical rocketship-esque (upward) excellence is unsustainable. Similarly, our inverted rocketship-esque (down) performance is also unsustainable from our previous analysis. Such performance from the XL is clearly printed on our XLK/XLE long-term chart.

So energy investors, please be careful. Does our price action analysis confirm the insider sell views on XLK and XLE? And we believe. So, if you are selling technology and adding energy, remember that the internals of energy and technology are not with you.

Also, note that XLK/XLE appears to have formed a bottom in June. The question is, is the bottom sustainable? Do we have a check mark?

The S&P 500 and XLK may have made their long-term highs.

S&P 500 Futures ( SPX ) ( SPY ) formed a confirmed bear trap last week. However, we don’t think it will be the recovery we saw in 2020 or 2018. The price structures prior to last week’s bear trap do not lend credence to such a recovery forecast.

We expect this market recovery to be fraught with significant ups and downs, leaving investors exhausted and the market rallying, trapping short-term investors on both the long and short sides. Short-term traders are urged to tread very carefully, because the current environment is filled with a series of spectacular bull/bear traps. The dynamics are more challenging and complex than what we observed in the bear market of 2018 and 2020. Makes sense given the macro headwinds and hawkish fed.

However, significant market underlying green shoots have been seen, which we believe is constructive for long-term dip buyers (although there may be near-medium-term volatility).

Market bottoms often occur when most investors least expect them. That’s why it’s called a bottom (it’s used to get anxious investors or traders to make directional bets or sell their shares at an absolute minimum price).

Given the performance and price action correlation between the S&P 500 and XLK, we believe XLK has also formed a long-term bottom.

Buy, Sell or Hold XLE and XLK?

We rate XLE as a hold, as recently at the bottom. However, we believe that the price action on the long-term chart indicates further downwards to pull in dip buyers after a short-term rally.

We rate XLK as a buy We believe it may be at a long-term bottom.