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.