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Get ready to buy “big oil.”
The energy sector lagged the broad stock market during the recent quarter. The Energy Select Sector Fund (XLE) fell 13% versus the 5% gain of the S&P 500. And, with the military conflict with Iran winding down, most folks don’t have energy stocks on their radar for the third quarter.
But the Bullish Percent Index for the energy sector (BPENER) just generated a buy signal. And, if this signal plays out similar to previous buy signals, then oil stocks could play a big game of “catch up.”
Look at this chart…
As a reminder… a bullish percent index (BPI) measures the percentage of stocks in a sector that are trading with bullish technical patterns. It’s designed to measure overbought and oversold conditions.
An index is overbought when it registers above 80 – meaning 80% of the stocks in the sector are trading with bullish patterns. An index is oversold when it drops below 30.
Buy signals occur when the BPENER turns higher from oversold conditions. That doesn’t happen often. For example, we only got one buy signal from the BPENER in 2024, and one buy signal in 2025. Both of those signals, though, led to fast gains for the energy stocks.
XLE gained 15% in three months following the BPENER buy signal in August 2024. It gained 12% in two months after the buy signal in April 2025. And, in 2026, the April buy signal preceded a 10% rally in just three weeks.
Last week’s BPENER buy signal could be suggesting the energy stocks are nearing a bottom. They’ll likely be higher in the weeks to come.
Of course, nothing is ever guaranteed when it comes to the stock market. No indicator has a perfect track record. But, we’ve had a lot of success trading bullish percent index signals in the gold sector, and in the financial sector. This time, we have a buy signal in the energy sector.
Traders should take advantage of any short-term weakness to add exposure to the energy stocks.
Best regards and good trading,
Jeff Clark
Editor, Market Minute