ENERGY SECTOR IS BREAKING OUT TO THE UPSIDE -- RISING PRICES CARRY GOOD AND BAD NEWS

UPSIDE ENERGY BREAKOUTS...Last week's message listed energy as the strongest market sector over the last week and month.   That positive trend continued this past week with some upside breakouts taking place.   Chart 1 shows the United States Oil Fund (USO) trading above its April high.   WTIC hasn't broken out yet but is getting close.    As normally happens, higher energy prices are having a positive effect on energy shares.

XLE BREAKS OUT... Last week's message also showed the Energy SPDR testing its spring high.   Chart 2 shows the XLE rising above that previous peak to achieve an upside breakout as well.

Chart 2

OIL SERVICES CONTINUES TO LEAD... The message from July 7 showed oil service stocks turning up sharply which suggested hat the entire energy sector was getting ready to rally.   That group continues to lead the sector high.   Chart 3 shows the VanEck Vectors Oil Services ETF (OIH) rising above its 2023 high to reach a multi-year high.  A number of individual stocks in that group were also shown which have continued to rally.   Exploration and Production stocks are also showing energy leadership.   A couple of them are shown below.

APACHE AND PIONEER BREAKOUTS... The next two charts show a couple of energy stocks that have helped lead the sector higher this week.   Chart 4 show Pioneer Natural Resources (PXD) trading well above its April high.   Chart 5 shows Apache Corporation (APA) doing the same.   Both stocks are in the Exploration and Production group which has been an energy leader along with Oil Service stocks.

RISING OIL PRICES MAY PUSH BOND YIELDS HIGHER... The rally in energy prices may carry good and bad news.   The good news is that higher prices should give a big boost to energy shares.   The potentially bad news is that rising energy prices may push bond yields higher.  The green bars in Chart 6 show the 10-Year Treasury bond yield climbing this week to the highest level since last November.   This week's Fitch downgrade of U.S. debt probably contributed to higher yields.  Rising energy prices may also be pushing yields higher.   The gray area in Chart 6 shows the price of oil surging over the last month along with bond yields.   Rising energy could boost inflation expectations which could push bond yields even higher.