NATURAL GAS LEADS ENERGY SECTOR HIGHER -- OIL SERVICE INDEX EXCEEDS 50-DAY AVERAGE

ENERGY ETF NEARS OLD HIGH... Energy stocks are rising again. In a mixed market, energy shares are especially strong. Chart 1 shows the Energy Select Sector SPDR moving up to challenge its April high. A close through that chart barrier would put the energy ETF at a new three-year high. The relative strength line is also turning up again. After outperforming the S&P 500 during the first four months of the year, energy slipped during May. The RS line is turning up during June. The biggest holding in XLE is Exxon Mobil (22%). Chart 2 shows XOM reaching a new 52-week high. ConocoPhillips (an 8% holding) isn't far behind.

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NATURAL GAS GROUP HITS NEW HIGH ... While crude oil prices have been slipping over the last month, natural gas prices have kept going up. That explains why natural gas stocks are now in a leadership role within the energy sector. Chart 4 shows the Natural Gas Index reaching a new 52-week high today. Two of its leading stock components are Anadarka and Burlington Resources. BR is already at a 52-week high. APC isn't far behind.

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OIL SERVICE INDEX TURNS UP ... A big part of the new energy buying is coming from the oil service group. Up until this week, the Oil Service Index had been the weakest part of the oil patch. After bouncing off its 200-day average, however, the OSX has broken through its 50-day line in decisive fashion. Its relative strength line has also turned up. This puts all of the energy indexes that I follow in uptrends. Two of the OSX top gainers today are Rowan and Schlumberger. RDC has broken through its April high. SLB has broken through its 50-day moving average and on rising volume. One of the rules of intermarket sector analysis is that energy leadership is a caution sign for the rest of the market. That may explain why the rest of the market is having a mixed day and hasn't built on yesterday's gains.

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