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XLE: Energy Stocks Could Finally Get a Jolt

With the halfing of the price of oil last year, energy stocks and ETFs have also felt the pain. The S&P 500 energy sector — as represented by the Energy Select Sector SPDR (ETF) (XLE) — has lost about 30% of its value since late June 2014.

beat the bell stock investing adviceWhile knife-catching is not a sound trading or investment strategy, Wednesday’s price action in the price of oil and oil-related stocks made me sit up and take notice. Now, I believe active investors and traders have a good reference point to focus around for a potential oversold bounce in energy stocks and ETFs.

The thing with volatility is that it sneaks up on investors, but when it arrives, it happens all at once. Whether you look at the price of oil as it topped last year or this morning’s calamity in the currency markets thanks to the Swiss National Bank giving up on the currency floor versus the euro, volatility has a tendency to … well, get volatile.

Because we live in an ever more globally interconnected world, particularly as it relates to financial markets, it is crucial that we keep an eye on the global macro picture and cross asset classes. As such, what the U.S. dollar does is very important to the price of oil. The inverse relationship between commodities and the U.S. dollar must be respected, which is to say that a weakening dollar would almost have to help a better oversold bounce attempt by oil and the various oil-related stocks in the XLE.

XLE Charts

With the above in mind, let’s note that on the weekly chart below, the XLE ETF has retraced back to its 2009 up-trend/support line. From a Bollinger Band perspective, the XLE continues to trace along the lower Bollinger Band, and the longer it does so the better the odds of a mean-reversion move higher.

xle chart weekly
Click to Enlarge

To be clear, I am not looking for any new or grand bull market in oil or oil-related stocks, but through this lens we look to be increasingly nearing a good bounce attempt.

On the daily chart below, we see that on Wednesday, the XLE ETF briefly dipped below its mid-December lows but staged a rally in the second half of the day as the price of oil rallied into its daily close. One day certainly does not make a trend, but the XLE did leave a bullish reversal candle behind on its chart as a result.

Momentum oscillators such as the Stochastics and the Relative Strength Index (RSI) meanwhile marked higher lows on Wednesday versus their December and October lows, respectively.

xle chart daily
Click to Enlarge

Active traders and investors could now look to use Wednesday’s lows to lean against for an oversold bounce attempt that could last several weeks. Ideally, the XLE would give us some follow-through buying in coming days to confirm Wednesday’s bullish reversal.

Traders then could look to buy the XLE at $74.50 or higher for a move into the high $70s.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/xle-etf-energy-stocks-jolt/.

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