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Using Energy As A Guide For Stocks

XLE


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).

XLE Chart

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

XLE Energy Select Sector SPDR NYSE + BATS

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.

Three Major Economic and Market Scenarios


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).

Stocks and the Economy can do just fine when oil plummets

 

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