Biotech vs Energy

My first pick for the rally was biotech and I said short energy was the trade of the second half.

June 17: If You Gotta Buy, Buy Biotech. IBB up 17% since then, XBI closer to 28 percent.

I mentioned short energy as the second big trade setup of 2022 back in late May. It then moved into full bloom in June.

Remembering this pair, I thought to look at biotech versus energy. The verdict: even more confident in the deflation, short energy call. Biotech beat energy in 2008 too, and there's now an inverse H&S on the ratio chart.

If you think you can't chart ratios, here's XLE and SPY.

This ratio points to around $40 for XLE with the price ratio falling back towards 0.10 versus SPY. If support holds it might stop at 0.15 which would be bullish. If SPY is down around $300, that tranlates into $30 to $45 for XLE.