Since the S&P 500 bottomed on March 30, energy is down nearly 7%, the only sector lower and underperforming the index by 19%. But could this pullback be an opportunity? The longer-term charts we’re reviewing today would suggest so.

XLE Currently Consolidating a Major Breakout

Looking first at the absolute chart of XLE, the SPDR Energy Select Sector Fund broke out from a decade-long base back in January. It did so on strong momentum, generating the highest weekly overbought reading in the 27-year history of the fund. A pullback unsurprisingly followed, but XLE is holding the breakout, and the extreme overbought condition has now been worked off.

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Relative Chart Starting to Find Support Recently

Relative to the S&P 500, energy stocks have been moving in wide multi-year swings of out and underperformance. But the absolute breakout at the beginning of this year also came with a relative breakout, taking out a three-year downtrend line and putting the ratio back above the neckline of the 2020-2021 bottom. Even with the recent pullback, XLE vs. SPX is holding the breakout and is above a rising 200-day moving average, a bullish trend by my definition.

Spot Crude May Have Topped

Turning our attention to the oil markets, most people assume we’ve seen the highs in oil, which briefly spiked above $115/bbl. I’m not going to argue that point, as momentum is making lower highs, even with the rise in prices over the past week. But that misses the point.

The Market isn’t Pricing in Elevated Prices Later

What investors may be missing is that even if spot crude has peaked, the market isn’t pricing in higher oil prices later. Early on, we heard a lot of takes that this was bullish, and the oil market was “looking past” the conflict, or expecting a resolution, citing mid-$70/bbl. crude prices for contracts in the summer. Except, things haven’t been resolved and even though the nearest month contract price (the one you see on your TV) is at almost an identical level as five weeks ago, we’ve seen a steady rise in prices for contracts in the summer and fall.

Given the current shape of the curve (steep backwardation) in contrast to its normal state of contango (lower left to upper right), this phenomenon will likely continue as contracts get closer to their delivery date.

Sentiment has Fully Reset

We’ll end today with a final tactical point in favor of energy bulls. When XLE peaked in March, it had recently seen its most inflows over a trailing three-month period ever, and the most one-month inflows since 2008. That’s a contrarian warning sign and the correction soon followed. But, we’ve since seen a big reset in investors sentiment with the fund seeing net outflows of more than $1.2 billion as of April 13. Later that week, XLE would post a bullish reversal and has been on a straight line higher since, retaking the 50-day moving average yesterday.

Wrapping it all up, energy hasn’t been the place to be over the past month. But the long-term charts, relative trends, and structure of the oil market suggest the odds are still in its favor for 2026, and investors should be looking at the recent pullback as an opportunity.

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