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Special Report
It's Time to Take Profits on These 2 Overbought Energy StocksWritten by Dan Schmidt. Date Posted: 4/11/2026. 
Key Points
- Energy has been the top-performing sector so far in 2026, riding the oil price spike to a massive gain of over 25% after years of underperformance.
- But now that a potential ceasefire between the United States and Iran has been reached, the upside in energy stocks appears to be fully priced in.
- Broadly, energy investments are starting to get overbought, and for the following two stocks, it might be time to take profits.
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A fragile ceasefire appears to have been reached between the U.S. and Iran, which pushed down oil prices and helped stocks gain more than 2% following the announcement. That momentum has continued: the S&P 500 is up more than 3% since the ceasefire news broke on Tuesday, April 7. The development highlights the ever-changing nature of geopolitical risk, but it also underscores the importance of taking profits on unexpected gains. Now that the energy sector looks overbought, it may be a good time to trim positions in some of 2026’s early winners. Geopolitical and Technical Signals Indicate a Break in Energy's RallyEnergy has been the best-performing sector in 2026 by a wide margin. The Energy Select Sector SPDR ETF (NYSEARCA: XLE) is up nearly 30% year-to-date (YTD). Decades ago, that kind of performance would have had a larger impact on the S&P 500, but with the rise of the Magnificent Seven and other mega-caps, the energy sector now represents under 5% of the cap-weighted index. As a result, this year's energy-led gains haven't been enough to halt broader market weakness.
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With a tenuous ceasefire in place, the energy sector is losing some of the catalysts that powered its rally. Below are a few reasons investors might consider selling or trimming energy exposure. First, the geopolitical risk premium is fading. Even before the ceasefire, the energy rally was showing signs of fatigue. Futures markets priced in oil above $90 per barrel through December, reflecting structurally higher fuel and petroleum prices. Much of the extra profit for oil and gas companies is already baked in, and de-escalation — for example, changes around Iran charging tolls for passage through the Strait of Hormuz — is now a headwind rather than a tailwind. Second, higher prices risk damaging demand. West Texas Intermediate futures briefly reached $115 before settling near $95 after the ceasefire announcement. While $95 oil is preferable to $115 for consumers, it is still a sharp increase from under $60 at the start of the year. Sustained prices around $100 would compress margins for airlines and other transportation companies, and price spikes typically take a few months to ripple through the economy. If consumers cut back, energy stocks will feel the effect. Lastly, the sector's technical signals are weakening. After XLE's RSI climbed to about 80, it plunged below 50 in under two weeks, signaling a significant drop in bullish momentum. Some large-cap energy names remain above the 70 overbought threshold, so profit-taking could accelerate if momentum continues to fade. If the price-shock component of the oil rally is ending, that could trigger a sell-off of overbought energy names. Two companies that have reached new highs but face growing fundamental and technical risks are highlighted below. Suncor Energy: Share Buybacks Mask Declining RevenueSuncor Energy (NYSE: SU), Canada’s largest integrated oil and gas company, has benefited from higher crude prices, but that surge has obscured underlying issues. Suncor missed revenue expectations in its Q4 2025 earnings report, with revenue down 3% year over year to $8.77 billion. The company has repurchased more than 12% of its float under its current buyback program, which may have helped keep the share price elevated before the recent price shock. The next earnings report is scheduled for May 5.  Technical headwinds are visible on the daily chart, including a double-top pattern that can precede a pullback. The RSI moved into overbought territory in the second week of March but has since retreated to its lowest level in months. The Moving Average Convergence Divergence (MACD) also shows a bearish crossover, confirming the shift in momentum. Entergy: Bullish Catalysts Appear Fully Baked InEntergy (NYSE: ETR) has benefited from the energy surge despite being a utility. But after roughly a 25% YTD gain, many of the company's catalysts are either not yet producing revenue or are already priced into the stock. Entergy has an agreement with Meta Platforms (NASDAQ: META) to supply power and infrastructure for a large Louisiana data center, but that deal has not yet boosted current earnings. In its Q4 2025 report, Entergy slightly missed both EPS and revenue estimates while reaffirming guidance for roughly 8% annual growth through 2029. Although 8% compound annual growth is attractive for a utility, ETR trades with valuation metrics more typical of an energy growth stock — a price-to-earnings ratio near 29 and a price-to-sales ratio above 4.  If the energy surge fades, momentum in ETR shares may fade as well. The technical chart shows buying pressure easing after a large late-March run, which could presage profit-taking. The RSI remains in overbought territory, and the MACD structure suggests greater volatility as the MACD and signal lines widen. If bullish momentum dissipates, investors may question why they own a utility trading at stretched multiples. |
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