The winner that everyone watched in 2022 was the energy sector.

It was the only sector that was up more than 10% last year… And it was up a lot more than that. Energy soared 66% overall.

The uptrend slowed down this year, though. The sector has been down for much of 2023. But now, a reversal is underway.

A specific segment of the energy sector recently rallied for eight straight days. That’s a rare setup… It has only happened eight other times since 2006. And it means we should be paying attention, according to history.

That’s because rallies tend to continue after this kind of streak happens. In fact, this move could lead to double-digit gains over the next year.

Let me explain…

The energy sector includes all kinds of companies. It’s a smorgasbord of the majors like ExxonMobil, oil-services companies, pipeline companies, and more.

From there, you can chop the sector into finer pieces. And one of the resulting subsectors includes exploration and production companies.

These businesses focus on finding oil and gas – and getting it out of the ground. And you can buy an entire basket of their stocks through the SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

This fund won big last year. But like the overall sector, XOP struggled through much of 2023. That began to change this summer, though. The fund moved higher for eight straight days in late July, triggering a rare setup. Take a look…

This string of up days is uncommon for XOP. But as the chart shows, the run helped solidify the recent move higher for the fund. And history shows this momentum can continue.

We should still expect a volatile ride from here. But eight similar instances have happened since 2006. And they’ve pointed to double-digit gains over the next year. Take a look…

This chunk of the energy sector has lots of ups and downs. But overall, it hasn’t done much since 2006. It has lost just half a percent a year since then.

Buying after a setup like today’s has been a winning strategy… if you have patience. Similar setups led to 5.3% losses after six months. But the typical gain was in the double digits a year later.

There’s more to the story, too… The data includes one massive 42% loss beginning in 2014. If you exclude that outlier, the typical one-year gain more than doubles to 22.6%.

In short, we can expect this volatile sector to perform true to its nature… even in the months after this rare setup. But the most likely outcome is that it will reach much higher prices in the next year.

Folks have mostly forgotten about energy stocks. But the trend is back in our favor. We should expect this to continue. And that makes investments like XOP a smart bet today.

Good investing,

Brett Eversole

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Source: Daily Wealth