Shares of energy and oil-related stocks in the S&P 500 as measured by the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) have rallied a significant 11% since the second half of August. While in the immediate term this sector looks to be overbought, through the intermediate-term lens, stocks such as that of Apache Corporation (NYSE:APA) may just be getting a larger rally underway.
Until the middle part of August, energy stocks and thus the XLE ETF looked like death and were dramatically underperforming the rest of the U.S. stock market. While the XLE ETF remains lower by about 6.5% for the year, the recent rally has gone a long way in narrowing the gap.
More importantly for the here and now, a good many energy stocks are now flirting with also turning their charts medium-term bullish, i.e. not just near-term bullish. The more confirmation we get of this, the higher the odds become of seeing another leg higher in energy stocks into year-end.
APA Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Depicting this on the chart, the chart of the XLE ETF shows that as a result of the recent strong multiweek rally, this ETF is now right up against its red 200-day simple moving average, which historically has been a good point of reference.
If and when this moving average can be overcome on a weekly closing basis, the road may be clear for a lift higher into year-end.
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Moving on to the multiyear chart of APA stock itself, we see that although the stock continued dropping into early 2016, from a momentum perspective the MACD momentum oscillator bottomed about one year earlier. Since then the stock also looks to have possibly made a higher low this August and could start to turn its medium-term trend higher.
Remember, traders and investors alike need a way to measure trends in multiple durations (time frames) or else are at major risk of not having the proper perspective needed for sustainable success in the markets.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, note that the multiweek rally has also brought APA stock back up to a diagonal like of resistance (black-dotted line) that currently also coincides with the stock’s blue 100 day simple moving average. A break and hold above this confluence area of technical resistance around the $46 mark would likely also coincide with the XLE ETF breaking past its technical resistance point discussed on the first chart above.
Bearish to bullish reversing stocks such as APA stock can be taken advantage of with a high-probability income-generating strategy using options.
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Once APA stock can get past the $46 mark it has a next defined upside target around the $50 mark. Any strong bearish reversal is a stop loss signal and any swing trades in my eye should not be held through any earnings reports.
Check out Anthony Mirhaydari’s Daily Market Outlook for Oct. 6.
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