Energy stocks could be getting too hot too fast in a ‘buying panic’

Surging energy stocks could soon slip, according to a strategist who sees weakness in the charts.

This week's rally in crude oil has driven the Energy Select Sector ETF (XLE) to break out of a seven-month-long range, and its trading volume surging, according to Matt Maley, managing director and equity strategist at Miller Tabak.

"A 'rally on higher volume' is usually quite positive, but when it jumps THAT much at a time when it is already getting over-bought, ... it frequently signals the kind of 'buying panic' that is usually followed by at least a near-term pull-back," Maley wrote in a note Thursday.

The XLE, which shot up this week to its highest level of 2016, appears "over-bought on a near-term basis," Maley wrote, recommending that investors should seek to add to "positions on weakness rather than chasing this rally."

The ETF, whose top holdings include Chevron and Exxon Mobil, jumped 5 percent Wednesday after OPEC agreed to cut oil production by about 4.5 percent, the first deal of its kind reached in eight years. The price of crude oil and the XLE often move in tandem.

At the same time, BK Asset Management's Boris Schlossberg said, investors may be pricing in too much optimism about the prospect of the incoming Trump administration extending favorable policies to energy companies.

"It probably very much will — but the bottom-line question is, 'Is there so much demand for oil to let's say, go to $60, $70 a barrel?' And I think that's very dubious," he said Thursday on CNBC's "Trading Nation." He said global gasoline demand has peaked and is heading downward.

"So I think the whole energy complex is going to be facing more problems than the market admits, and that's why I'm a little bit cautious on the whole sector," said Schlossberg, managing director of foreign exchange strategy.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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