Analysis: XLE

Last week and again today we noted the particular strength we've seen in oil prices and the positive impact had on our Action Alerts PLUS holdings Energy Select Sector SPDR Fund (XLE) .

As we can see in the chart below, those shares have climbed roughly 20% since early June, their strongest move so far this year, and as a result they are once again flirting with being overbought.

In our opening comments this morning, we noted UBS sees Brent Crude hitting $95 later this year as extended supply cuts take their toll. That's just over 4% from where Brent is trading today, and it too is overbought.

As we telegraphed in our comments earlier today, the prudent portfolio management move is to book a slice of those profits, while leaving some exposure to capture additional upside in the coming months. That is exactly what we are going to do now by selling roughly a quarter of the portfolio's interest in XLE shares.

With the remaining XLE shares, we'll be closely watching the prospects for the Fed to be done raising interest rates, China's stimulus efforts to stoke its economy and of course the speed of the US economy. Should XLE shares continue to move toward our $98 target, we may be inclined to do some additional profit taking.

After you receive this Alert, we will sell 265 shares of the XLE at or near $91. Following the trade, XLE shares will account for roughly 2.1% of the portfolio.

(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)