Energy ETFs Sell Off As FedEx Disappoints

September 18, 2012

Oil explorers and producers ETFs led the stock market south Tuesday as FedEx (FDX) delivered disappointing first-quarter results and lowered its full-year outlook. The U.S. economic bellwether and world's largest airline-cargo shipper said weak global economic conditions hurt sales as customers opted for cheaper shipping options.

SPDR S&P Oil & Gas Exploration & Production (XOP), one of last week's leaders, fell 2.81%. It looks like a healthy dip after last week's 4.25% vertical surge. It's rallied 7.76% so far this month vs. 3.69% for the S&P 500.

Energy Select Sector SPDR (XLE) shed 1.17%. It's ahead nearly 5% month to date.

United States Oil (USO), the largest ETF trading oil futures, fell 0.0.8%. Crude oil fell 0.83% to $95.82 a barrel.

"FedEx underscores the reality of the economy weakening and that takes momentum out of the oil market," said Kimberly DuBord, director of research at Briefing Research in Chicago. "The world is slowing. We continue to have more economic data showing more of that taking place, especially in China — a big consumer of oil."

Fears of inflation from QE3 and potential supply disruption from conflict in the Middle East has already been priced into the market and now traders are booking profits, DuBord added.

"Energy as a sector represents a buying opportunity for investors depending on their existing exposure and risk tolerance," said Mark Martiak, senior vice president at Premier Wealth Management in New York City.

U.S. Markets Mixed

In afternoon trade, SPDR S&P 500 (SPY) shed 0.19%.

PowerShares QQQ (QQQ), tracking the 100 largest non-financial stocks on the Nasdaq, -0.09%, was nearly flat.

SPDR Dow Jones Industrial Average (DIA), -0.04%, regained most of its early morning losses.

The market is pulling back from overbought conditions brought on by the Federal Reserve's quantitative easing announcement the past Thursday.

"This is natural, and to be expected, and it ought to have another day or two to run until the rubber band gets unstretched again," Tom McClellan wrote in his daily client note. "Once that happens, the uptrend should proceed again."

The Nasdaq can top 3,200 (up slightly from Tuesday's level) led by Apple (AAPL) hitting $750 a share and Google (GOOG) $740, says Gennady Kupershteyn, managing partner of Kupershteyn Advisory Group in New Jersey.

"But with more and more of the early-leading stocks are topping even as the stock market has made a new high and economic reports indicating a poor earnings season to come, there is now a high probability that we will begin to see the market enter a topping process going into earnings season," Kupershteyn said.

Those leading stocks include Alexion Pharmaceuticals (ALXN), Equinix (EQIX), Mellanox Technologies (MLNX) and many others on the IBD 50 list.

Follow Trang Ho on Twitter @TrangHoETFs.

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