The elusive energy rally is finally on, says top technical analyst

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Chartmaster says energy stocks are about to light up

The long-awaited rally in last year's worst-performing S&P sector might finally be on. Rising tensions in the Middle East and the resulting jump in oil prices have one top technician bullish on the space, which could be setting up for a year drastically different from 2019.

The XLE Energy ETF that tracks the space finished last year up just 8%, vastly underperforming the S&P 500's 29% surge. But this year, the market could be telling a much different tale.

"I think this current spike in crude is quite different than the impetuous one associated with the missile strikes on Sept. 16. A few factoids about the sector, we know that it's very small, at 4.4% [of the S&P 500], that's basically the smallest it's ever been in the history of the data, going back to 1989," Carter Worth, Cornerstone Macro's head of technical analysis, said Friday on "Options Action."

The sector's 28 stocks make up about $1.2 trillion in market cap, which, as Worth would point out, is roughly the same as that of Apple or Microsoft. He also noted that Chevron and Exxon Mobil make up about half the sector's weighting, making the group extremely top heavy.

"Energy's historical weighting is 9.5%. We're never going to get there again, I don't think, but here, at this level of four and change, I think we're going to move back toward 5.5 or 6% of the S&P," said Worth.

According to Worth, this move higher is being signaled by a variety of technical cues.

"Has it broken above that downtrend? You're darn right it has," said Worth. "Has it come out of this, sort of, wedge to the upside? Yes. Can we call it a certain formation, a little double bottom? Yes. Can we call it a head-and-shoulders bottom? Yes. It all implies: higher. I think you want to be long this area of the market, and you can use XLE as your vehicle."

The XLE was trading slightly higher in Monday's session.

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