The US Dollar continues to weaken, and international energy stocks are one of the groups benefiting most from it.
Look at what’s happening in the global energy space. While US energy (XLE) has chopped sideways for the better part of two years, our All Star Charts International Oil & Gas Index is pressing up against new decade highs.
That’s not a coincidence. It’s classic weak dollar behavior. These stocks are playing a larger role in the uptrend for international equities every day.
When the dollar topped back in late 2022, these trends dislocated. Since then, the international side of the ledger has been the clear leader, while American energy has struggled.
And it’s not just energy. The ratio of International vs US Gold Miners tells the exact same story. Both series turned higher as the dollar rolled over. Nearly that same day:
International energy is knocking on the door of a fresh breakout.
Gold miners are confirming that the relative strength in the commodities space remains abroad.
And the greenback continues its descent.
This is intermarket confirmation at its finest. Which brings me to my next point…
There has been a strong relationship between the dollar and crude oil this cycle, which has weighed extra heavily on US energy stocks, helping drive the divergence shown in the first chart.
But when it comes to ex-US energy stocks, the weak dollar tailwinds have been much stronger than the weak oil headwinds…
With our index breaking out to fresh decade-highs, we’re making the bet this action continues.
It also wouldn’t surprise me if the recent relationship between dollars and oil cooled off.
Seeing the two move together so closely, as they have for the past few years, is rare. In fact, this correlation, which is historically negative, is hitting its highest positive reading ever.
If this relationship were to revert back toward its historic average, it could blow the roof off the international energy trade.
So here’s how we’re going about it:
Our international Oil & Gas Index is breaking out to new decade highs and reclaiming a key level of interest at the 61.8% retracement of the 2008 to 2020 decline:
But we can’t trade this index, so let’s drill in and talk about some leaders we’re using to express our bullish thesis.
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