Trade of the Day: The Energy Select Sector SPDR (ETF) (XLE) Is Worth a Look Again

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The price of oil continues on its one-way street lower and as a result is pulling most oil-related assets, such as energy stocks, down with it. Given the persistence of selling in commodities in general, it comes as no great surprise that the energy sector of the S&P 500 as represented by the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) at -15% is by far the worst-performing sector year to date.

XLE ETF: The Energy Select Sector SPDR (ETF) (XLE) Is Worth a Look Again

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Although trying to catch the proverbial falling knife is rarely a sound trading nor investment strategy, at present the XLE ETF and thus many energy stocks are nearing oversold levels and potential technical support areas in multiple time frames.

XLE ETF Charts


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To gain some perspective, let’s first take a look at the relative picture. For this chart I plotted the XLE ETF versus the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).

While the selling pressure in energy stocks certainly has been ugly thus far in 2017, this chart reveals that this is simply a continuation of a longer-standing trend that has been intact since 2008. Trend followers who were relatively underweight the energy sector over the past nine years have done well with this trade.

The trend is clear and unless an actual reversal back up takes hold, this is hardly a chart worth buying. For perspective and so it’s said, I will, however, point out that the relative chart is now nearing some horizontal support (previous resistance) dating back to 2004 and before.

Again, that alone is no actionable catalyst, but it is worth pointing out.


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On the multiyear weekly chart, the picture is just as ugly, as the primary down-trend persists. Note that the red 200-week moving average is well above the current price.

Here too, however, to see both sides is to respect the fact that with this week’s sell-off the XLE ETF has now reached the 50% retracement line of the entire rally off the 2016 lows into the December 2016 highs.


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Lastly, on the daily chart we see that the latest down-trend since December 2016 for the XLE ETF has come in a very-well-defined range. Again, the trend remains firmly intact and not yet setting up a “buy” trade this very moment. However, the bulls will point to two distinct things. 1) The XLE ETF is once again near the very lower end of this down-sloping channel, where over the past six months bounces have occurred. 2) From a momentum perspective, note that the MACD oscillator at the bottom of the chart bottomed out in March and has been making a series of higher lows since. This so-called “positive divergence” often times is an early sign that price, too, will begin to turn back higher.

In summary, although the trend both in absolute and relative terms for the energy sector remains lower, a strong bullish reversal on a daily and preferably on a weekly basis that pushes the XLE back above $65 – $65.50 area could be an important buy signal for an initial trade back higher toward $70.

Check out Anthony Mirhaydari’s Daily Market Outlook for June 22.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/06/energy-select-sector-spdr-etf-xle-etf-look/.

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