The Energy Select Sector SPDR is finding support at the 21-day line in a base. The exchange traded fund that holds top energy stocks is trading 8% below a buy point at 94.71, according to IBD MarketSmith.
The energy sector had a blockbuster rally in 2022, gaining 58%. Compare that with the S&P 500, which fell 19% during the year.
XLE shares are recovering after June's lows of 76.25 and have already gained 15% in less than two months.
XLE is affected by the price of its underlying commodity.
The price of West Texas Intermediate crude oil bottomed at $68.09 a barrel on May 1 and has gained 19% since.
The ETF's top stock holdings have been gaining as well.
Exxon. Chevron, SLB, ConocoPhillips and EOG Resources are up from their lows of the year. Shares of these major oil plays are holding most of their recent gains in August, though the S&P 500 is down over 4%. In comparison, the five top holdings in the ETF are down less than 2% in August.
These stocks are leaders in many ways. Chevron is a Dow Jones stock, while SLB is in the oil and gas field services group, which ranks No. 18 among IBD's 197 industry groups. EOG is in the oil and gas exploration group, ranks No. 19.
The first half of 2023 was dull for the energy sector, with shares breaking even from December's closing price of 87.47 at the end of June.
A bunch of factors led to the lackluster price action. Fears of recession drove crude oil prices down. Then came bad news from China after severe Covid lockdowns drove its economy into a slump. Then the Russia-Ukraine war led to sanctions against Russia, but there were plenty of countries ready to get their energy needs met with discounted Russian oil, including the world's biggest oil importer, China.
Shares of XLE are in an early stage base-on-base pattern, which shows that the stock can build traction quickly and get into a rally if conditions turn favorable. XLE is on IBD Leaderboard.
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