Is The Energy Sector About To Breakout? $XLE

Cameron Dawson, CFA, CIO at NewEdge Wealth joined Benzinga's Premarket Prep team to take a look at what's happening in the energy sector.

Transcript

00:00All right, Cameron Dawson, Chief Investment Officer over at New Edge Wealth. Cameron,

00:04how are you doing on this Friday morning? Good, good. Good to see you guys.

00:09Cameron, right now, are there any, I guess, specific sectors that you're looking at or

00:14have been in focus for you? Well, we have certainly started to see this drifting lower

00:21in some of the tech leadership. And it's important to note because it's such a big

00:26part of the index. It's 30% of the S&P 500. So what we've been saying about tech is that you

00:32don't need it to be leading like it did at the beginning of the year, but you certainly can't

00:36have tech be outright weak in order for this market to continue to press higher. We do think

00:41that if you're looking at some of those classic defensive areas, mostly utilities, that they are

00:46extremely overbought. If you look at the utility sector, it's now trading at 20% above its 200-day

00:52moving average. That 20% level, every time you see any index, whether it's utilities or the

00:58semiconductors or the technology stocks more broadly, typically is followed by weaker forward

01:05returns unless you're coming out of a major market low, which is just to say that overbought levels

01:12like this are typically signs that you're going to have some consolidation. So we're cautious at

01:18chasing some of the things like utilities, which have run a lot. We see that tech, we have to watch

01:23that very closely. And then you're starting to see this bubbling up of life and some of the

01:29unloved areas like energy. Energy has certainly seen some positive volatility in the last couple

01:35of days. However, we have to be very aware that it's been in this downtrend really since April. So

01:42energy is one of those where it's close to breaking out. And if it does, it could become a lot more

01:46interesting.