📡 Energy Market Signals

Energy offers clear relative strength signals because different segments respond differently to oil prices. By monitoring ratios between crude oil, E&P stocks, services companies, and midstream infrastructure, you can identify sector rotation and cycle turns before they become obvious.

The energy sector hierarchy

Segment	ETF	Oil Price Sensitivity
Crude Oil	USO	Direct
E&P (Producers)	XOP	Very High
Services (Drillers)	OIH	High
Midstream (Pipelines)	AMLP	Low-Moderate
Broad Energy	XLE	Moderate

Not all energy ETFs move together — this hierarchy drives all the signals below.

Core ratios

XOP/XLE — E&P vs. Integrated Majors

The key ratio for choosing between high-beta and defensive energy:

Behavior	Action
Rising	Favor XOP — high-beta wins
Falling	Favor XLE — integrated buffers losses
Breaking out	Overweight XOP aggressively
Breaking down	Rotate to XLE defensively

OIH/XOP — Services vs. Producers

Reveals capex cycle position:

Behavior	Cycle Phase
Rising	Late cycle — services capturing spending
Falling	Early cycle — producers lead
Bottoming	Cycle turn — services seeing orders

AMLP/XLE — Midstream vs. Broad Energy

The divergence detector:

Behavior	Signal
Rising	Fee-based > commodity exposure
Falling	Oil rally lifting upstream
AMLP up, XLE down	Defensive rotation to yield

USO/SPY — Crude Oil vs. Market

Behavior	Signal
Sharp spike	Geopolitical shock
Steady grind up	Commodity inflation trade
Steady grind down	Demand destruction, strong dollar

USO/GLD — Oil vs. Gold

Compares growth commodity to fear commodity:

Behavior	Signal
Rising	Growth optimism
Falling	Risk-off, flight to safety

Historical note: When gold buys 50+ barrels of oil (vs ~15-20 average), oil is likely oversold.

Cycle phases

Accumulation (Beginning)

Signals:

Futures curve flipping to backwardation
XOP/XLE breaking out
OIH/XOP bottoming
Rig counts stabilizing after decline

Action: Accumulate energy. Favor XOP for high-beta.

Confirmation (Middle)

Signals:

USO/SPY in clear uptrend
Rig counts rising consistently
Oil above breakeven ($65+)

Action: Hold positions. Add on pullbacks.

Distribution (End)

Signals:

XOP/XLE rolling over
OIH/XOP at cycle highs
Universal bullish consensus
Contango returning

Action: Tighten stops. Rotate to XLE or AMLP.

Quick signal dashboard

Bullish (Accumulate Energy)

Signal	What You See
Backwardation	USO front > back months
E&P leadership	XOP/XLE rising
Services inflecting	OIH/SPY bottoming
Rigs rising	4+ consecutive weeks up
Oil above breakeven	WTI > $65/barrel

Bearish (Reduce Energy)

Signal	What You See
Contango	USO front < back months
E&P lagging	XOP/XLE falling
Services rolling	OIH/SPY breaking down
Rigs declining	8+ consecutive weeks down

Trading strategies

Cycle Rotation

Setup: XOP/XLE breaks out from consolidation
Entry: Buy XOP on breakout confirmation
Exit: XOP/XLE breaks below 50-day MA

Capex Cycle Trade

Setup: OIH/SPY bottoming + E&P budget increases announced
Entry: Buy OIH when 50-day MA turns up
Exit: OIH/XOP at cycle highs + capex softening

Income Rotation

Setup: AMLP yield > 8% + AMLP/SPY bottoming
Entry: Buy AMLP on higher low in ratio
Exit: Yield compresses < 7%

Divergence Play

Setup: AMLP rising while oil falling
Entry: Buy AMLP on 3+ weeks confirmation
Exit: Oil stabilizes and XLE catches up

Ratio quick reference

Ratio	Rising =	Falling =
XOP/XLE	High-beta leading	Defensive energy
OIH/XOP	Late cycle	Early cycle
OIH/SPY	Capex accelerating	Capex contracting
AMLP/SPY	Income rotation	Risk-on
AMLP/XLE	Stability valued	Oil rally
USO/SPY	Commodity trade	Stocks preferred
USO/GLD	Growth over fear	Fear over growth