Summer Blockbuster: An Energizing Rotation

There’s one sector that’s set to take off this summer. And I’ve found an easy, safe way to play it

While the overall market rally is on pause, you have the opportunity to shift your focus to your next potentially profitable play.

Right now we’re seeing the signs of a change in market leadership. Industrials, financials and technology names have taken the baton for the next leg of the race. This is the kind of action you want to see as a rally matures—a rotation from the stodgy, safe stocks into more cyclical names.

That’s why I’m turning my attention to the energy sector today.

Check out the Energy Select Sector SPDR (XLE). After underperforming earlier in the year, energy names started to break out in early May. Now, this ETF is showing signs that it’s ready to springboard higher.

Energy Shares cut loose XLE

The timing couldn’t be better for this sector right now.

XLE has retreated back toward its breakout zone. And it’s not massively overextended like health care or consumer staples names. In fact, XLE has yet to top its 2008 highs. But it’s close.

If bullish news continues to push new investors into energy names (BP announced just yesterday a $1 billion investment in new Alaska rigs) this could be the best performing sector this summer and beyond.

Also, it doesn’t hurt that this ETF is a great way to play a basket of energy stocks without taking on a lot of the earnings risk you get when you drop your coin on one or two individual companies. For an ultra-conservative approach, you could even set a stop loss just below $78. That way, you can bail with minimal losses if momentum fails to hold.

Like I said, the timing couldn’t be better for this ETF.

But there’s more to the story…

Two More Promising Energy Stocks

Okay, so the energy sector is in breakout mode – the bellwether ETF, XLE, finally snapped out of its funk last month and moved to new year-to-date highs.

Don’t let my use of the word “breakout” fool you into thinking I’m trying to get you to chase a white-hot rally. Energy stocks aren’t exactly setting the world on fire right now. In fact, most of them have stunk up the joint all year while everyone piled into health care and financial stocks. Even as the market dipped the past few days, the energy sector was following right along.

However, over the past several weeks, investors began to shift their collective focus. New market leaders are emerging, and I think energy could be one of the groups benefiting from the shift.

With that in mind, I want to direct your attention to two strong XLE components:

When to buy Chevron and ConocoPhillips

I like both of these charts because they’re each close to their respective low-risk buy zones. Mega-cap Chevron Corp. (CVX) has steadily trended higher so far this year. A safe buying point would be on a bounce after a retreat toward $120.

Meanwhile, ConocoPhillips (COP) looks a lot more like XLE. It too is retracing its May breakout. You can time a low-risk buy on a bounce near $60.

Again, XLE is the most straightforward play that offers the broadest exposure to the sector. But if you’re looking for some equities to line your pockets, CVX and COP both possess the potential to deliver outstanding returns this summer.


Greg Guenthner, CMT
Original article posted on Daily Resource Hunter

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