Through the end of last week’s action, energy continued its ascension up the NDW DALI Sector Rankings, moving into the third position for the first time since December 2023. Last week’s action (2/6 -2/13) brought a 16-tally signal increase for energy with most of the signals coming from the likes of communication services and financials, as they fell to fifth and sixth in the rankings. Energy is the most improved sector within the NDW DALI Sector Rankings so far in 2026 with an increase of 71 signals, and the next closet being industrials with a 25-signal increase. From here, if energy were to move into either of the top two spots, it would mark the first time since January 2023.

Last week’s rise in relative strength for energy was derived from continued upside action within energy stocks and funds. The State Street Energy Select Sector SPDR Fund (XLE) improved on recent all-time chart highs by rallying to $55, continuing higher in its current column of Xs that included a third buy signal by in mid-January. The fund has been on a buy signal and in a positive trend chart since December last year and has shown positive near-term market relative strength against the S&P 500 Equal Weight Index (SPXEWI) since January this year. The recent rally has brought the market RS chart to within one box of an RS buy signal for the first time since moving to an RS sell signal in January 2024. From here,

Through Friday’s close (2/13), XLE is up more than 20%, and the recent push higher has brought the ETF above the top of the 10-week trading band and to its most overbought level since April 2024. From here, investors will look for a pullback and consolidation in the lower $50s before considering. Prior resistance in the upper $40 range may be seen as near-term support, while additional can be found in the $45 range.

The broad market has taken a breather to start 2026 with the S&P 500 essentially flat on the year. However, underneath the surface on the single stock level there is plenty of movement to consider. While we often refer to dispersion in a momentum or relative strength framework, one of the biggest trades in Wall Street is the volatility dispersion trade which looks to take advantage of the difference in single-stock volatility compared to index volatility. One way to look at this difference in volatility is to compare the average single-stock implied volatility versus that of the CBOE Volatility Index (VIX). Historically, this spread is almost always positive, which is to be expected as single-stock volatility, even on average, is higher than that of the S&P 500. However, if the spread gets elevated to levels it is currently at, there is usually some absolute volatility expansion at the index level to “catch-up” to volatility of individual names. On the flip side, when the spread between stock and index volatility gets close to zero or turns negative, these have been historically great buying opportunities. In other words, volatility dispersion is mean reverting.

High single-stock volatility, relative to index volatility, can be a great environment for strategies that look to take advantage of differences in stock performance, like momentum. Winners can win big while losers can lose a lot. This is what we’ve experienced so far this year as relative stock volatility is high and high-momentum stocks have done well. One way we quantify the state of momentum is the RS Spread Index (RSSPREAD) which tracks the difference in performance between high and low momentum baskets of stocks. When RSSPREAD is rising, high momentum names are performing better than low momentum names with the opposite also being true. RSSPREAD quickly broke out to new all-time highs to start the year and continued to push higher through February. Fortunately, momentum strategies have been able to take advantage of the big movement in stocks to start their year.

Moving forward, it is hard to expect the difference between single stock and index volatility to stay as elevated as it has been. That doesn’t mean disaster is on the horizon, but some combination of lower stock volatility and higher index volatility is to be expected in the short term. This may lead to a slowdown in the exceptionally strong year for momentum. However, this is perfectly normal, and “slowdown” does not necessarily mean underperformance, it’s very possible momentum continues to do well just not at the level it has to start the year. Investing is full of ups and downs. It’s important to not only to have an investment process, but also a mental framework for dealing with those ups and downs - to stay even keel through both good and bad times.

Daily Option Ideas for February 17, 2026