NEW YORK (TheStreet) -- If the Federal Open Market Committee announces additional quantitative easing, known as QE3, Wednesday afternoon, the energy sector should benefit.
Investors could view QE3 as the catalyst that will help bring the economy out of the summer doldrums. With stronger economic growth comes demand for energy, with improved consumer confidence comes increased demand for gasoline.
On Tuesday, we learned that the Conference Board Consumer Confidence Index rose to a better-than-expected reading of 65.9 in July. While this is a positive, this measure of confidence is well below 90 to 120 that is considered the neutral range for this economic series.
One way to participate in potential gains for energy and oil companies is through the Energy Select Sector SPDR Fund (XLE), which includes 45 stocks that explore, find, refine and market energy products around the world. Energy stocks can fuel economic growth in the global economy.The energy sector also provides a platform for speculators looking to gain from the rising price of crude oil. Crude oil prices are also influenced by stress in the Middle East, particularly Iran. Here in the U.S., hurricane season just ended its second month, and August and September should be more active. Crude oil prices will likely rise if a hurricane moves into the Gulf of Mexico and causes supply disruptions. Here's how to capture gains in the Energy SPDR using my "buy and trade" strategy. The weekly chart shows how XLE tracked the bursting of the crude oil bubble and then its recovery. XLE declined 59.1% from a high of $91.42 in May 2008 to $37.40 into March 2009. The rally from that March low into the April 2011 high at $80.97 was a gain of 116.5% on hopes of an economic recovery. Notice how the 200-week simple moving average has been a magnet since October 2009. The weekly chart remains positive this week with a Friday close above the five-week modified moving average at $67.80.
Source: Thomson Reuters The daily chart shows that XLE moved sideways to down on lower highs since the end of March 2011. This is similar to the pattern I discussed on Tuesday for the Materials Select Sector SPDR Fund (XLB) in Trading the Undervalued Basic Materials Sector. Like XLB, XLE has moved sideways to down right through QE2 and Operation Twist. This is another warning that Federal Reserve policy has not achieved the desired results of an improving economy.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV