ENERGY SHARES ARE BOUNCING ON OPTIMISM OVER OPEC AGREEMENT -- EXXON MOBIL MAY BE ON THE VERGE OF A BULLISH BREAKOUT -- CHEVRON IS NEARING A NEW RECORD HIGH -- ENERGY SHARES MAY START TO BENEFIT FROM RECENT BUYING OF CHEAP STOCK GROUPS

ENERGY SHARES REBOUND ... Energy shares are finally showing some bounce. The daily bars in Chart 1 shows the Energy Sector SPDR (XLE) climbing above its 50-day average today. The XLE is bouncing off chart support along its late October low and its 200-day moving average. Those are logical chart points for the XLE to start moving higher. [The 50-day average remains higher than its 200-day line which is also a positive sign]. The gray area (which plots a ratio of the XLE divided by the S&P 500) has been slipping over the last two months. But it's rising today with energy being one of the day's strongest sectors. That's probably based on reports that OPEC has agreed to extend production cuts to the end of 2018. Energy shares have lagged behind rising oil prices which recently hit the highest level in two years. It's time for them to start catching up.

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Chart 1

EXXON MOBIL NEARS UPSIDE BREAKOUT ... Exxon Mobil (XOM) has the biggest weight in the XLE (23%). And it appears to be on the verge of an upside breakout. The daily bars in Chart 2 show XOM nearing the highest level since January. The stock is trading above both moving average lines which themselves are positive (with the 50-day over the 200 day). Its relative strength ratio (gray area) shows that XOM has been a market laggard all year. But that may start to change if oil prices continue to move higher. Its longer range chart is also promising. The weekly bars in Chart 3 show Exxon Mobil consolidating in an apparent "symmetrical triangle" over the last three years (defined by converging peaks and troughs). That's usually a bullish continuation pattern. Its 14-week RSI line (top box) shows positive momentum over 50; while its weekly MACD lines (below chart) have turned positive. All of which favor higher prices. Chevron looks even stronger.

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Chart 2

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Chart 3

CHEVRON NEARS NEW RECORD... Chevron (CVX) is the second biggest stock in the XLE (17%). The daily bars in Chart 4 show Chevron climbing to the highest level in a month. It's also safely back above its 50-day average. Its relative strength ratio (gray area) is also starting to bounce. The weekly bars in Chart 5 show the energy leader also on the verge of hitting a new record high, having recently exceeded its 2014 peak. Its relative strength ratio fell during the first half of the year, but has been rising since July (black arrow). Energy stocks have been one of the market's weakest sectors this year (-7%). That certainly makes them relatively cheap. That being the case, energy stocks may start benefiting from recent buying of formerly beaten down market sectors like airlines, banks, retailers. And higher energy prices if energy producers in OPEC and Russia continue to cut oil production.

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Chart 4

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Chart 5

STOCKS RISE ON OPTIMISM OVER TAX CUTS... U.S. stock indexes are rallying strongly today on growing optimism for a Republican tax cut. All eleven S&P 500 stock sectors are in the black with energy and industrials leading the way. Technology is bouncing back from yesterday's big drop. The Dow Transports are hitting a new record, which puts them back in sync with the rising Dow Industrials which are also in record territory. Bond yields are also climbing on hopes for economic growth.