Energy Sector

Back on 10/15, I mentioned that the energy sector stock group was starting to  reverse a decline
in relative strength in place since the bursting of the oil price bubble in mid 2008. I mentioned
several factors to account for the positive turn: The oil price has resumed a positive trend
following a sharp pullback over Apr. / May 2010. The natural gas price is building a base after
a huge price decline from mid 2008 through Aug. '09. These two factors in a recovering global
economy provide the basis for a positive turn in earnings for the industry. As well, continued
recovery will eventually return increased pricing power for oil especially as capacitiy
utilization at the wellhead rises. Thus, the sector may be expected to offer relative strength in
earnings, too.

When there is a sharply positive turn in relative strength for a sector against the broad stock
market following a significant period of decline, it is well worth notice especially if the
positive movement in relative strength is appreciable. This means investors are changing their
outlook quickly with some zeal and are doing re-positioning in favor of the group.

One caveat: The XLE energy sector is a market leader now but is coming up on a short term
overbought situation. XLE