The energy sector is coming off its best week ever.
That group was swept up last week in a rally rewarding stocks tied to the economic growth story – even with U.S. Covid-19 cases on the rise and the threat of further lockdowns looming. The sector rose by more than 16%.
Last week was a welcome change for energy investors – it is the worst S&P 500 performer this year by a wide margin.
But, Nancy Tengler, chief investment officer at Laffer Tengler Investments, warns the bounce may be too good to be true.
"When you look at historic performance, the XLE [energy ETF] over the last 10 years is down about 4.2% annually versus positive 13% for the S&P and positive 2.3% for Chevron, so I would be looking at maybe buying something like a Chevron for a trade," Tengler told CNBC's "Trading Nation" on Friday.
While energy's cheap valuation and recent pickup in performance might look positive for investors, Tengler cautions against being misled by false buy signals.
"Chevron and the XLE have been in our buy range for over 12 years which means they're not cheap. They're terminally cheap," she said. "When you think about the fundamental change in how we get energy, clean energy, the emphasis that a [Joe] Biden administration is likely to put on that, I would view this as a cyclical trade but not a secular trend that I would want to hold onto as a long-term investor."
Craig Johnson, chief market technician at Piper Sandler, said the charts offer evidence that the energy sector might still come under pressure despite the bounce.
"It's great that we made a higher low in here but we've done that before and we've only turned around and failed," Johnson said during the same "Trading Nation" segment.
"This chart for the XLE is below a declining 200-day moving average, the longer-term trend is still very much in a secular decline," said Johnson.
"With Chevron and Exxon representing 45% of this index and those charts aren't showing any sign of a turnaround at this point in time, I would largely view this as just one of these sort of relief rallies and a short covering rally and I'd be looking to be reducing positions in the energy space at this point in time."
The XLE ETF is down 44% this year. Exxon Mobil has fallen 48% and Chevron 31%.