...and Murphy's Technical Expertise

12/19/2003 12:00 am EST


John Murphy

Head Market Analyst, Stockcharts.com

"Natural gas prices recently rose to a six-month high; this past week crude and heating oil followed suit," notes technical expert John Murphy, editor of StockCharts.com "That puts all three energy markets in new uptrends." Here, Murphy reviews an energy sector ETF.

"The energy sector can be broken down into three groups that are represented by three different indexes. The strongest group has been natural gas, which is represented by the AMEX Natural Gas Index. That index is trading at a two-year high. The AMEX Oil Index, which includes large integrated oil companies, has risen to a 16-month high. The laggard in the group is represented by the PHLX Oil Service Index. All three are moving higher. If you want relative strength, natural gas stocks are preferable. If you want value, oil service stocks may be a better place to look.

" There are lots of ways to participate in the energy sector rally. One is to buy the commodities. One can buy options on the various energy indexes like the OSX; or individual oil stocks. One can also invest in an energy sector mutual fund. An increasingly popular way to participate in sector trading is through an Exchange Traded Fund (ETF). These are baskets of securities that trade just like individual stocks. Most are traded on the American Stock Exchange. Unlike a sector mutual fund, ETFs can be traded at anytime during the trading day. In addition, they can be traded as often as you like. The Energy Select Sector SPDR (XLE ASE) is an ETF. It hit a six-month high about a week ago, and its performance since was even more impressive. The XLE broke out to the highest level in a year and a half. Rising volume is a bullish sign. The rising relative strength ratio is another positive sign. If you're looking for a way to participate in the energy sector rally, ETF trading is a simple and efficient way to do it."

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