By Doug Busch
Energy has lagged over the past year, with the State Street Energy Select Sector ETF ranking ninth of 11 major sectors.
Momentum, however, is building. Over the past three months, energy has moved up to become the third-best performer. This relative strength is likely to remain a theme in 2026. From a tactical perspective, energy stocks appear to be shifting from a defensive phase into one of accumulation. As long as key support levels hold, the path of least resistance points higher.
Energy stocks appear bifurcated at the moment. The aforementioned XLE ETF, with its overweight allocation to large-caps, sits just about 2% below its most recent 52-week high. The more "equal weighted" State Street SPDR Oil & Gas Exploration & Production ETF by contrast trades roughly 13% below its own annual peak. The divergence raises an interesting question for 2026. Will we see a reversion to the mean, with broader participation emerging across the group? Or will large-cap leadership continue to set the pace?
Energy's decline from roughly 16% of the S&P 500 at its 2006 peak to just about 3% today may actually be part of the bullish setup. At current levels, the sector is historically underrepresented, under-owned, and largely ignored. Unlike 2006, when energy's dominance reflected excess capital spending and peak enthusiasm, today's low weighting follows years of underinvestment and investor skepticism. Energy doesn't need to regain anything close to its former index share to outperform. Even a modest reallocation of capital could drive meaningful relative gains.
Let's take a closer look at three compelling energy stocks that appear well positioned for further gains.
The best-performing subsector within energy over the past year has been the equipment and services group. The VanEck Oil Services ETF has gained 10% over the last 12 months and surged 25% over the past three months. The fund has carved out a bull flag just above the very round $300 level. Think of this group as the "picks and shovels" of the energy space. Individual names have been equally impressive. SLB and Halliburton jumped a respective 12% and 10% last week, underscoring the renewed momentum in oilfield equipment and services.
One stock that looks primed for gains is Baker Hughes. The oilfield services company started the week soft, falling 4% on Monday, and has now been soundly rejected at the round $50 level four times since late September. A bearish engulfing candle on Feb. 7 preceded a 32% drawdown into early April, but technicals have since turned constructive. The gap up on July 23 completed a bullish island reversal following the April 4 gap down. The stock can be bought at $48, after a gap fill Monday from Jan. 2. A bullish ascending triangle is now forming, with a breakout above $51 offering a potential add point. The stock could travel toward $58 by mid-2026, a gain of 23% from current prices. Maintain a bullish stance above $44.
Baker Hughes was trading at $48.50 Tuesday.
For investors seeking international exposure, particularly in South America amid recent geopolitical developments, Ecopetrol stands out. The Colombian energy juggernaut has delivered a robust 30% return over the past year and offers a striking dividend yield near 15%. The stock is off to a strong start in 2026, already up 11%, underscoring its appeal as both a high-yield and growth-oriented energy play.
Looking at its daily chart, Ecopetrol has outperformed the XLE benchmark consistently since August. Round number theory has come into play with the recent move above $10 level poised to hold, unlike three previous attempts in February, March, and November. This latest breakout came courtesy of a break above a double bottom pivot at $10.32 on Jan. 5, accompanied by double the average daily volume. The base formation began with a bearish harami on Nov. 19. The stock is currently trading into a bearish evening star completed on Jan. 7. A tactical entry on a pullback near $10.75 could set the stage for a move toward $14 by mid-2026, representing a gain of about 27% from current levels. Maintain a bullish stance above $9.75.
Ecopetrol was trading around $11.25 Thursday.
Many investors considering energy stocks often overlook coal, but the segment has produced some standout performers over the past year. Warrior Met Coal and Peabody Energy have surged roughly 86% and 81%, respectively, while Alpha Metallurgical Resources has advanced 26% over the same period and appears poised to play catch-up.
The weekly chart shows Alpha Metallurgical breaking above its 200-week simple moving average in December after spending a year below it. The 50-week moving average is now beginning to slope higher, suggesting this nascent uptrend has legs. The rally began with two bullish candlestick patterns off the very round $100 level, a piercing line in April and a morning star in July. On the ratio chart versus the Range Global Coal Index, the stock broke a downtrend late last year and has been steadily building momentum. A tactical entry near $235, with an add point above the weekly double-bottom pivot of $255.14, sets up potential upside toward $400 by year end, representing roughly a 63% gain. Maintain a bullish stance above $205.
Alpha Metallurgic Resources was trading around $240 Tuesday.
If these improving technical trends hold, energy may be shifting from a trade to a trend.
Doug Busch is the senior technical analyst at Barron's Investor Circle . His technical view is added to stock picks, including those published exclusively for Investor Circle readers. A glossary of technical terms is updated regularly with new entries.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 13, 2026 11:29 ET (16:29 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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