Oil ETF Barreling Toward Longest Win Streak in Years

Since May 8, when President Donald Trump announced the U.S. would withdraw from the Iran nuclear deal, the Energy Select Sector SPDR Fund (NYSEARCA: XLE) has been on fire. With oil prices surging amid concerns about Iran sanctions, the energy exchange-traded fund (ETF) is pacing for its 10th straight win -- which would mark its longest win streak since 2006. So, is the oil fund about to cool off, or could XLE extend its trek higher?

XLE Eyes Best Quarter Since 2011

At last check, XLE was up 1.2% to trade at $78.47. Earlier today, the ETF notched a nearly three-year peak of $78.83, poking north of a former ceiling in the $78 area, which contained rally attempts in late 2016 and January 2018. After jumping 9.5% in the month of April, the XLE is up another 6.3% so far in May, and is pacing for its best quarter since late 2011.

Only One Other 10-Day Win Streak

July 2006 was the only other time ever in which XLE shares rallied for 10 straight days. Specifically, the fund surged 13.29% in that time frame. However, that surge preceded an 11.66% pullback over the subsequent three months, according to data from Schaeffer's Senior Quantitative Analyst Rocky White.

Finding the 'Sweet Spot' After Big Rallies

Since such a small sample size provides very few clues as to what could be the fund's short-term trajectory, we decided to take a look at what happens after XLE enjoys a winning streak of seven days or more. Since 2000, there have been 17 of these instances, the last occurring in October 2015. Again, that strong uptrend preceded a rough three-month stretch for the fund, which fell 20.44%.

However, from a broader perspective, strength has beget strength for the Energy Select Sector SPDR Fund. A day after the winning streak was snapped, the XLE was up 0.28%, on average, and higher 64.7% of the time. That's compared to an average anytime one-day gain of 0.04%, with a win rate of 52.3%, looking at data since 2000.

One month later, the ETF was up another 2.69%, on average -- roughly three times its average anytime one-month gain of 0.67%. Further, XLE shares were in the black 70.6% of the time a month after ending a win streak of at least seven days. That's compared to an average anytime one-month win rate of 56.4%.

Three months later, XLE was up 2.48%, on average -- slightly lower than its one-month return, but still handily above the fund's average anytime three-month return of 1.91%. As such, it looks like the "sweet spot" to jump in on XLE is about a week after it snaps a lengthy win streak, as the shares tend to outperform again in the short term.

Still, it should be noted that XLE is coming up on a historically bearish time of year. Since inception, the fund has averaged a loss in the months of June, July, August, and September, according to Schaeffer's Quantitative Analyst Chris Prybal. For traders spooked by seasonality, consider shorter-term plays on individual oil stocks, with Whiting Petroleum (WLL) and Callon Petroleum (CPE) among those recently flashing "buy."