But, one group stood out most today. And it’s extra interesting because it’s the same group that has been on top of the leaderboard all year.
Energy is leading all sectors on a trailing one-month and three-month basis. It is the leader year-to-date. It is the leader month-to-date. It was the leader this past week. And it was the top sector again today.
Impressive, right?
Now consider that it’s been doing this without any cooperation at all from crude oil.
Oil has fallen -17% from its mid-January highs and is down about -7% in 2025. Meanwhile, XLE is up about 8% year-to-date.
I’m looking for crude to dig in at this shelf of support and set energy stocks up for even more leadership in the future.
But here’s why this trade really excites me.
This is a monthly chart of the Energy Sector SPDR $XLE with our volatility squeeze indicator in the lower pane.
Volatility has literally never been so compressed.
What we do know from this indicator… is volatility expansion is coming.
What we don’t know, however… is in what direction it will occur in.
Thankfully, we have some great tools like trend, momentum, and relative strength to help with that.
We’ve already discussed momentum and relative strength. Those boxes are checked.
As for the trend, energy stocks have gone sideways for roughly three years. The space has been dead. Absolutely trendless.
However, the two years that preceded this multi-year range were among the best in history for energy stocks. For crude oil, too.
XLE soared from $23 to $93, returning 300% from its 2020 lows to 2022 highs.
Crude literally went from zero to $100 in this time.
The reason this matters is because this multi-year holding pattern is just a continuation formation. Continuations tend to resolve or “continue” in the direction of the underlying trend.
The trend coming into this pattern was undeniably higher, so I’m anticipating the resolution will be higher as well.
And considering how depressed volatility is, I think the resolution rally will be a fierce one.
I’m talking about a really big bang. This is a multi-year coil at the upper bounds of a multi-decade base.
There’s never been so much pent-up energy in energy stocks.
While there is still work to do, and the true breakout level is 99 for me, I’ve been jumping entries since last week.
If crude is above 65 and XLE is north of 93, I’m going to keep adding exposure.
A big energy breakout is in the cards. It’s time to get ready for it.
