ENERGY STOCKS MAY BE TOPPING

One of the principles of intermarket behavior is that commodity-related stocks usually peak before the commodity. That's why the next chart is so interesting. While energy prices hit a record high early this week, the Energy Select Sector SPDR peaked in late April. That created a negative divergence with the rising commodity. The three peaks formed since early March also have the look of a potential "head and shoulders" top. To confirm that bearish pattern, however, the XLE would have to break the "neckline" drawn under the March/May lows. The relative strength line has been dropping for three weeks and is testing the up trendline starting in February. A break of that line would be a negative sign for the energy sector.