An Uptrend Unveiled
The Energy Select Sector SPDR Fund (XLE), a tracker of U.S. energy stocks, recently revealed a pattern known as the “golden cross” with the 50-day moving average surpassing the 200-day moving average.
This formation indicates a continuation of the uptrend that commenced in mid-January 2024, reflecting a strengthening of recent price action and potentially signaling a bullish trend extension for investors.
Historical Context
The last occurrence of a golden cross in U.S. energy stocks was noted in late August 2023. However, its impact was short-lived as the XLE ETF saw a decline after mid-September.
Conversely, the golden cross in late December 2020 resulted in substantial gains, with the XLE ETF experiencing a 33% increase over the subsequent three months, a 45% surge over the following six months, and an impressive 130% appreciation over two years.
Currently trading with a 9-percentage-point gap from the all-time highs achieved in June 2014, the energy stock gauge shows promise for investors.
Analyst Insights
Goldman Sachs analyst Neil Mehta has expressed optimism regarding oil prices, leading to the identification of five top Upstream oil picks. These include ConocoPhillips (COP), Canadian Natural Resources Ltd. (CNQ), Devon Energy Corp. (DVN), Kosmon Energy Ltd. (KOS), and Magnolia Oil & Gas Corp. (MGY).
With an average return expectation of 15% in a scenario where Brent prices trade at $80 a barrel, the analyst’s picks are poised for growth. Goldman Sachs’ price target forecasts Kosmos Energy to have the highest potential upside of 26%.
Chart: US Energy Stocks Form Bullish Golden Cross Signal