Update To XLE Trade

The signal on Aug 8 to buy the XLE resulted in a loss as the XLE dropped from 69.35 to 67.20, a 3.1 % loss. The position would've been closed on Tuesday after the two week holding period.

Updated Indicator Test

I just reanalyzed the relation between the XLE 0.1 ema and the SPY 10 days later for the period 4/20/04 to 8/21/07 (today is the 23rd). I also analyzed the 20 day after SPY results.



The 10 day correlation is -.27. The 20 day correlation is -.32. These are quite high and encouraging.



There also was a perfectly monotonically increasing return 10 days later in the SPY as the XLE 10 day e.m.a. decreased, and a fairly good increasing return 20 days later:



XLE 0.1 ema ----------------------SPY 10 days later----SPY 20 days later


< -.56 ____________________ 1.45 %____________2.98%

< -.44 & > -.56 ______________1.06 % ____________1.80%

< -.31 & > -.44 ______________0.97 % _____________2.01%

.14 & > -.31 ________________ 0.86 %_____________1.39%

< .45 & > .14 _______________ -0.04 %_____________0.12%

< .53 & > .45 _______________-0.24 %_____________0.69%

< .62 & > .53 _______________ -0.39 %____________-0.28%

> .62 ____________________-0.49 %____________-1.27%

Average 10 day SPY return 0.4 %. Average 20 day return 0.8 %.


As of today's close, the XLE 0.1 ema is 0.01 so we are slightly positive (by interpolation).

XLE Buy Signal

My oil stock indicator will flash a buy on the close today (its now 1:50 PM EST). In the past four years, the XLE gained 2.7% over the next two weeks after a buy signal, which is above the 1.0% average return - a 1.7% above average return!

The Buyback Letter (by David Fried) has a few oil stocks in its portfolio:
* Valero (VLO)
* Marathon (MRO)
* Nabors (NBR)
* Exxon (XOM)
* Royal Dutch Shell (RDSA)
* Sunoco (SUN)

McDep says Chevron(CVX) and Conoco(COP) are good values, as are the two giant Russian companies Gazprom and Lukoil.

I'll go with recently underperforming MRO.