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S&P 500 component is among the market’s best performers, outrunning its index by a wide margin.

Energy continues to be a sector that’s home to stocks living up to the name, while others continue to languish.

Year-to-date, Devon has advanced 64.20%, boosted more recently by a small uptrend in August, just as the broader market was declining. The stock is up 18.67% in the past month. Shares closed at $71.20 Monday, up $2.69 or 3.93%.

Meanwhile, the S&P 500 is down 14.79% year-to-date, although it rallied 3.66% the week ended September 8, and gapped 1.07% higher Monday.

Devon announced on August 9 that it entered into a definitive purchase agreement to acquire Validus Energy, which operated in the Eagle Ford Shale in Texas, in a cash transaction valued at $1.8 billion. It’s expected to close at the end of the third quarter.

Since Devon reported earnings on July 29, four analysts boosted their price targets on the stock, . Wall Street’s consensus rating on the stock is a “moderate buy” with a price target of $75.53, an upside of 6.08%.

The company has been on a tear, growing both sales and earnings at double- and triple-digit rates in each of the past four quarters. It has a stellar return on equity, at 39%.

Devon’s chart is revealing a classic cup-with-handle pattern, with a buy point above $75.27. It’s a toss-up whether those patterns actually work at any given time. However, it makes intuitive sense that institutional investors would snap up shares after a short selloff, giving them an opportunity to add to a position at a lower valuation.

Energy Sector Still Powering Up

The energy sector remains the big winner of 2022. has returned 48.12% this year. The only other sector with a 2022 gain is utilities, which is up 8.10%.

The best performer within the large-cap energy sector is , which checks in with a gain of 126.32% this year. Like Devon, large-cap Occidental has been notching a string of solid earnings and revenue increases in recent quarters.

Smaller energy companies have also been participating in this year’s rally. For example, an ETF I often use as a proxy for the small-cap energy sector is the . This ETF, which is based on the S&P SmallCap 600 Capped Energy Index, is up 44.17% this year.

Because the index tracks smaller companies, risks are higher but so is the potential reward. It’s been outperforming the broader market (by a long shot), which is exactly the ETF’s premise, during periods when energy prices are rising.

Watch The Chart Patterns

The largest component in the small-cap energy index, by weighting, is , a Denver-based natural gas explorer and producer with a market cap of $5.669 billion. Although a small cap is traditionally a company with a market capitalization below $2 billion, it’s too hard for indexes to reconstitute when a company grows to the level where it’s technically a mid-cap, as SM is.

SM has returned 57.84% year-to-date. In Monday’s session, the stock cleared a cup-with-handle pattern, although it retreated to finish below the breakout price, but still with a gain on the session.

Interestingly, the broader large-cap S&P is following a trajectory similar to the numerous cup-and-handle patterns we’re seeing in energy stocks, but with less upside momentum in recent weeks. A weekly chart for the S&P 500 indicates that a handle could possibly form soon, if we see a downturn of five days or more.

is forming a cup-shaped pattern below its August 23 high of $93.95. The stock corrected after rallying on rumors of a sale, but there’s been no news on that front in recent weeks. Even without being an acquisition target, the Plano, Texas-based explorer and developer is showing strength relative to the broader market, and analysts expect strong earnings in the next two years.

It’s always a good idea to focus on stocks outperforming the broader market, but use caution: Don’t chase stocks well beyond their breakouts, but use to find fundamentally strong stocks that are in the early stages of price upticks.