Energy stocks appear to be particularly vulnerable to the sell-off in crude oil

The chart of energy stocks versus crude oil prices seems to be in trouble, as correlations that used to be close to 100% have turned negative since oil prices peaked earlier this year
.

Reynolds, chief market strategist at Reynolds Strategy LLC, said the negative correlation is a warning to oil stock investors, who appear to be buying oil stocks
in the belief that inflation is rising without considering the performance of the underlying commodity.

"As a result, we believe oil stocks are particularly vulnerable to further declines in oil prices," Reynolds wrote
in a note to clients.

According to an analysis of FactSet data, from crude oil futures closing at a 23-year low of $11.
57 on April 21, 2020, to energy ETF closing at an eight-year high of $92.
28 at the time on June 8, 2022, the correlation coefficient between continuous crude oil futures and SPDR energy option industry ETF XLE was 0.
96%.

A correlation of 1.
00 means that the two are fully synchronized
.

But since XLE peaked in June, the correlation between the two has been -0.
27, meaning that crude oil futures and XLE tend to move differently
.
On Monday, XLE fell 2.
1 percent in afternoon trading, while crude futures rose 1.
5 percent
.

XLE crude reached an eight-year high of $94.
08 on Nov.
15 and has accumulated a 15.
2% gain as of Monday since crude oil futures peaked on March 8, while crude futures fell 37.
6% and the S&P 500 fell 5.
0%.

In 2014, the correlation between crude oil futures and XLE was 0.
94
in the 8 months following its peak in June 2014 due to a sharp drop in oil prices due to oversupply.

Among some XLE constituents, crude oil futures correlated with Chevron stock at 1.
42%, from a crude oil trough in April 2020 to a peak of 0.
91 in June 2022, while the correlation has been -0.
29
since.
ExxonMobil's stock XOM correlates with crude oil from 0.
94 to -0.
37
.

Below this level, the 200-day moving average is currently extending to around $
79.
Many consider the 200-day moving average to be the dividing line
between a long-term uptrend and a downtrend.
(Keep in mind that not only are crude oil futures below the 50-day moving average and the 200-day moving average, but in early September, the 50-day moving average also fell below the 200-day moving average — the bearish "death cross"
.
) ）

In addition, the ascending trend line from October 2020, which roughly connects the August, October 2021 and July-September 2022 lows, now extends to around $72.
25, while the potential support defined by the July and September 2022 lows is between
$65-68.