This article is written exclusively for Investing.com
Energy stocks have skyrocketed in 2021, with the Energy Select Sector SPDR ETF (NYSE 🙂 the top performing sector, up nearly 18% to to start the year. The group may still have room to climb based on some bullish options bets suggesting the ETF is climbing to $ 48.50, a jump of nearly 9%.
The strong start to 2021 for the industry is due to a slump that helped support prices, pushing the commodity up to more than $ 53 after the year started below $ 50. But it doesn't just help to improve oil prices; sentiment among the group has improved, with sell-side analysts such as JP Morgan upgrading Exxon Mobil (NYSE :).
Bullish Betting Taking Place
There are plenty of bullish bets taking place on the XLE ETF at the strike price of $ 45 expiring on February 19. Over the past 5 trading sessions, the interest outstanding on those calls has increased by about 52,000 contracts during that time. The data shows that most phone calls were bought for about $ 1.05 per contract. It would indicate that the ETF is trading more than $ 46.05 on maturity.
In addition, there have been some bullish bets on the XLE at the strike price of $ 48 for the same expiration date. In this case, the calls were bought for about $ 0.45 per contract, suggesting that the ETF is trading above $ 48.45 in mid-February. That would be an increase of almost 9% in the coming weeks.
Major Exxon Upgrade
The optimistic outlook was aided by the big moves up as stocks such as Exxon Mobil hit its October low of $ 31.50 reached. The stock recently got an extra boost when JPMorgan (NYSE 🙂 upgraded the stock to overweight for the first time in seven years, while the stock got a price target of $ 56, representing a gain of around 11%.
The optimistic optimism is no doubt also reflected in Exxon's technical chart, which currently shows a cup-and-handle pattern. This pattern would indicate a further rise in the stock from its current level of around $ 50. A projection of the bullish technical pattern would indicate the stock is climbing to around $ 54.75, a gain of nearly 9%. That also happens to be where a technical level is from a previous peak on June 8.
Improving the Economy
The optimistic outlook was driven by improving oil prices as the dollar declined and as the world economy begins to recover. The outlook for the economy was bolstered by the prospect of more fiscal stimulus from the US. That has resulted in an increase in revenues, including the note, while the dollar was pushed lower. Due to the falling dollar, oil prices have risen the highest level since February 2020.
If the dollar remains weak and global oil demand continues to recover. It certainly seems possible that the energy sector could continue to see a significant tailwind in 2021. After all, the energy group had a terrible 2020, despite many investors turning their attention to the world of renewable energy. The fossil fuel sector is unlikely to disappear any time soon, and that means the sector could rise further in 2021 as it recovers from its terrible losses in 2020.
