Get ready to buy “big oil.”

The energy sector lagged the broad stock market in 2024. The Energy Select Sector Fund (XLE) gained 6% versus the 23% return of the S&P 500. So, most folks don’t have energy stocks on their radar for 2025.

But the Bullish Percent Index for the energy sector (BPENER) is on the verge of generating a buy signal. And, if this signal plays out similarly to previous buy signals, then oil stocks could play a big game of “catch up.”

Look at this chart…

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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 hasn’t happened yet. But, the BPENER is in oversold territory.

Waiting on a Buy Signal

So, it could generate a buy signal any day now.

In all of 2024, we only got one buy signal from the BPENER. That was back in early August.

Here’s how the energy sector performed following that signal…

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XLE gained 5% almost immediately. It then dipped to a lower low in September before launching a more significant rally that generated a 15% gain less than three months later.

XLE is currently trading at about the same price it was back in August. The sector is just about as oversold as it was back then as well.

And, the BPENER is on the verge of generating a buy signal.

This looks like a bullish setup to me. And, with the incoming Trump administration chanting the mantra of “Drill baby drill,” 2025 could prove to be a good year for the oil stocks.

Best regards and good trading,

Jeff Clark
Editor, Market Minute