Sunday, April 29, 2007

XLE and Money Flows for Energy Stocks

Our last visit to the Energy sector within the S&P 500 index found some price consolidation and waning adjusted relative dollar volume flows. Since that time, we can see that the 10-day average flows (pink line) have moved well above the 200-day average (red line), supporting higher prices in XLE (blue line).

The five stocks highly weighted within XLE that I use for the flow calculations are XOM, CVX, COP, SLB, and OXY. As a group, those five stocks account for about half of the XLE index as a whole.

Of the group, only XOM is currently showing flows below its 200-day average. Those flows, however, still are quite positive. There is absolutely no evidence of dollars exiting this sector.

We're currently seeing unusually strong dollar inflows into CVX and SLB, but all four remaining stocks are showing 10-day flows well above their 200-day averages. It appears that institutions are putting fresh capital to work in Energy stocks. This is contributing to new bull market highs for the sector.

As mentioned before, I generally expect trends to continue when money flows are expanding, and there is a tendency for 10-day flows to peak ahead of price. For those reasons, it would not surprise me to see further price strength ahead for the Energy sector.


weightoftheevidence said...

What data service do you use to feed EXCEL?

Brett Steenbarger, Ph.D. said...

RealTick, per the recent link:

Ryan said...

Hi Brett,

Looking at the chart there would appear to be negative divergence between the recent relative dollar flow lower high and the higher sector price - do you pay much attention to these kind of relationships, or is the value only in looking a the current flow relative to the historic lookback average?

btw - v interesting analysis, thanks again.

Brett Steenbarger, Ph.D. said...

Hi Ryan,

Yes, it's not unusual to see price consolidation or pullback when we have waning dollar volume flows accompanying higher prices. That's what happened leading up to the market corrections in May, 2006 and Feb/Mar 2007. Normally, however, we see distinctly below average flows prior to any major correction. The flows into the energy stocks remain quite positive.