Using Energy As A Guide For Stocks

Key Levels For Energy Bulls And Bears

In a February 3 tweet (below), we noted market participants could gain some valuable insight into economic dynamics by keeping an eye on energy stocks (XLE).

Thus far, energy stocks have been unable to break the 82.10 level noted two weeks ago.

If XLE can clear the 82.10 to 84.62 barrier, and hold above that range, the odds will improve relative to “scenario three” as described in detail on January 27.

Myth: Stocks Can’t Do Well When Energy Is Weak

The point of the exercise is not to assess bullish and bearish odds for stocks, meaning stocks can go up within the context of a weak energy sector (see table below). The fate of energy stocks can assist us with the relative attractiveness of inflationary assets (e.g. energy) and deflationary assets (bonds).

Image from jinterwas via Flickr (image altered).

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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