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We basically have two stock markets right now, energy stocks and everything else. All the other industries are highly correlated to each other. The big outlier is energy stocks. Also, the daily volatility of the other sectors is still very low. Energy is the only place that’s showing any action.

The most popular way of investing in energy stocks is through the S&P 500 Energy Spyders (XLE). This is almost akin to what the Nasdaq 100 ETF (QQQQ) was during the tech bubble.

Look at this chart of the Financial Spyders (XLF) compared with the S&P 500 ETF (SPY):

They move together like waltzing partners. I just used the finacials as an example, but several other sectors are moving just like that. Now look at the Energy Spyders:

Talk about following your own drummer! The overall market has almost no bearing on energy stocks (and vice versa).

Posted by edelfenbein at November 30, 2005 3:40 PM