Energy’s back, baby!
For the second week running, the State Street Energy Select Sector ETF (XLE) saw solid returns, rising 3.5% and leading the market higher. This follows the previous week, when XLE rose 3.4%.
Of course, this should come as no surprise to regular readers of What My System Says Today…
Energy stocks have consistently rated well in my Green Zone Power Ratings system throughout 2026, starting well before the war in Iran.
The onset of hostilities served to pour gasoline on the fire, sending share prices sharply higher. As hostilities died down, we saw a normal, healthy correction in both crude oil prices and the shares of energy stocks.
Now, we are seeing XLE return to its trend.
But the path forward still remains unclear…
The Strait of Hormuz remains mostly closed… and the spike in fuel prices has already claimed one scalp in Spirit Airlines (FLYYQ). Higher jet fuel costs were the straw that broke the camel’s back for the struggling discount airline.
So, I expect we’ll continue to see volatility in energy prices as the market digests all of this.
But my system is telling us to look past any noise and focus on the underlying trend.
Energy stocks have been trending higher for months, and my system suggests the move is healthy and sustainable.
Of course, energy isn’t the only story. The sector is too small to pull the market up on its own. For the S&P 500 Index to sustain a rally, we need to see the tech sector participating.
And indeed, it has been…
Google parent Alphabet (GOOGL) ripped the cover off the ball with its earnings release last week, sending its market cap soaring by an almost unbelievable $400 billion.
And Apple (AAPL) saw its market cap grow by well over $100 billion.
It wasn’t long ago that $100 billion would have been considered an extremely large company. Now, that’s a single week’s worth of price movement for a major tech stock.
Clearly, moves of that magnitude can’t and won’t happen every week. But this tells us that investors still believe in the AI story.
Key Insights:
- Energy is back! The sector reversed its recent losses and led the market higher last week.
- Materials were the only sector down significantly last week.
- Tech earnings continue to dominate the market narrative.
All About Energy
Let’s get back to energy.
I ran my customary screen of the biggest movers in the sector that were also still within 10% of their 52-week highs last week. The idea is to look for solid, market-leading stocks that are getting stronger.
Here’s what I came up with:
We see some familiar names here.
The refiner stocks – Marathon Petroleum (MPC), Phillips 66 (PSX) and Valero (VLO) – have consistently appeared on “Bullish” screens throughout 2026. They continue to rate exceptionally well and are all at or close to their highs for the year.
The Hormuz closure and the damage done to the energy infrastructure in the Persian Gulf are real problems that will take months, if not years, to fully resolve.
But that’s not bad news for American refiners.
The longer the Persian Gulf remains a mess, the more in demand American energy will be.
Do NOT Buy the Dip in Materials Yet
The materials sector was the only one to see significant declines last week. But with inflation still running hot, could the recent bearishness be setting us up for a rally in materials?
After all, commodities tend to do well when prices are rising and faith in paper assets like cash and bonds is low.
Let’s take a look!
I ran my customary screen of the sector’s biggest losers for the week that are still trading within 10% of their 52-week lows. The idea is to find beaten-down gems that look poised to recover.
It’s not pretty.
Normally, I don’t share the specific Green Zone Power Ratings in What My System Says Today, reserving those for paid subscribers to Green Zone Fortunes. But the ratings this week are just so bad, I feel I would be remiss not to share.
Of the seven stocks that met my criteria, six rated as “Bearish.” But not all “Bearish” ratings are created equal.
International Paper (IP) and 3M Company (MMM) are two of the lowest-rated stocks in the entire 4,000-plus stock universe I follow. International paper rates a 5… out of 100!
MMM isn’t much better with a rating of just 8. And Amcor (AMCR) and Mosaic (MOS) rate at 13 and 14, respectively.
I’ll be doing a deeper dive into the materials sector tomorrow.
Whenever I see this much bearishness, I can’t help but think there might be a few hidden bargains to be found.
It’s also worth noting that the most “Bearish” stocks here are not commodity producers… they are actually commodity users. So, rather than helping them, the recent inflation spike is actually hurting them.
We’ll dig into the details tomorrow.
Until then…
To good profits,
Adam O’Dell
Editor, What My System Says Today
