Energy Sector Nears Multi-Year Resistance: Breakout Ahead?

Key Points

• The energy sector quietly nears 52-week highs amid all-time highs in the U.S. market, indicating a pivotal moment.
• XLE demonstrates resilience with a 9.5% year-to-date increase, approaching a potential breakout near $93, attracting significant interest.
• Key sector players and the ETF's top three holdings, XOM, CVX, and SLB, show positive momentum.

As the U.S. market hovers near all-time highs, one sector has quietly surged higher and now stands at a critical juncture - the energy sector. While the broader market has experienced a significant uptick year-to-date and achieved new all-time highs, led firmly by the technology sector, the energy sector has steadily increased while remaining out of the limelight. 

However, recent developments indicate that this sector might be on the verge of a significant breakout, garnering further attention. So, let's delve into the current landscape and potential opportunities within the energy sector.

The Energy Select Sector SPDR Fund NYSE: XLE has shown resilience over recent months. Its year-to-date increase of 9.5% has outperformed the broader market's 8.5% gain. XLE is approaching a significant resistance level of around $93, marking a potential multi-year breakout point. With $38 billion in assets under management (AUM) and a healthy dividend yield of 3.5%, XLE remains a focal point for investors eyeing the energy sector's potential.

After spending months consolidating in a tight range above contracting moving averages, the sector broke out in February and has since steadily risen. It is now trading near a significant inflection point, near $93. As the sector trades near a multi-year resistance level, investors will closely monitor price action and headlines to see whether it can continue consolidating near this key breakout point. 

If the sector can break above resistance with authority, it would mark a significant turning point and the start of a potential major uptrend on a higher timeframe. To gain further insight and clues into the sector's overall momentum, it’s crucial to note where some of its top holdings are trading and how these individual sector heavyweights might be shaping up. 

Key Industry Players

Exxon Mobil NYSE: XOM

With a market capitalization exceeding $440 billion, Exxon Mobil commands over 21% of XLE's weighting, exerting significant influence on the sector's direction. XOM has a P/E ratio of 12.71 and a dividend yield of 3.36%. Based on those metrics alone, the stock might appear favorable and attractive for value investors. 

However, thanks to its double-digit gains year-to-date, the stock’s RSI of 74 indicates overbought territory. As XOM approaches potential resistance near $114, the best short-term outcome would be for the stock to spend time consolidating and making a higher low, allowing its RSI to reset. 

Chevron NYSE: CVX

Chevron is the ETFs second-largest holding, weighing an impressive 18.52% of the ETF’s portfolio. While CVX has slightly underperformed XOM and the sector in its year-to-date gains, the company offers an above-average dividend yield of 4.22%. 

Notably, for CVX, the stock recently reclaimed its downward-sloping 200-day SMA, indicating a potential shift in momentum. If the stock can continue to base above its 200-day and build a solid foundation of support, it might provide confirmation of a trend shift and indicate higher prices. Analysts are bullish on the name, with a moderate buy rating and price target forecasting an almost 17% upside. 

Schlumberger NYSE: SLB

With a 5.38% weighting in XLE, Schlumberger is the third largest holding. While its market capitalization pales in comparison to the above two, the stock currently exhibits many positive signs. 

Based on thirteen analyst ratings, SLB has a buy rating and consensus price target forecasting over 30% upside. The company's earnings are expected to grow by 18.64% in the coming year, from $3.54 to $4.20 a share. Similar to CVX, shares of SLB recently reclaimed their flattening 200-day SMA, indicating a shift in momentum and the potential start of a higher-time frame uptrend.