No Energy Yet in the Energy Sector

The energy sector has been beaten up badly since the end of February. Now the chart of the Energy Select Sector SPDR, $XLE, is showing signs that a move could be imminent. The weekly chart below, has at least 5 indicators of a pending move, but it may not be what you think.

1. The price is resting on support of the bottom rail of a symmetrical triangle going back to 2008. A bounce of the rail brings a trade to the top rail at 76.50, but a crash down through it has a Measured Move to 19.20.

2. The small consolidation over the last 7 weeks is building a bear flag. A break down out of that consolidation brings a target first of 58.25 and then a Measured Move to 47.75.

3. The 20 and 50 week Simple Moving Averages (SMA) are moving lower and are about to cross the 100 week SMA. All three tightly converging , but not running flat can be a catalyst for a big move. The plurality of the SMA’s pointing lower suggests down.

4. The Relative Strength Index (RSI) is has been trending lower over the last 4 months but is currently trying to pop higher. With it still in bearish territory the bias is to the downside, but that would not preclude a pop up near 60 and failure, which would likely bring price at least to the SMA jumble.

5. The Moving Average Convergence Divergence (MACD) indicator is negative, but it has bottomed and is improving. This divergence higher is a positive for the sector and would be re-enforced if the RSI continued higher. Look for a cross to positive as the conclusive evidence that this lone indicator is correct.

None of this analysis precludes the sector from doing what ever it will do including rallying 10% in a day. But for now the evidence gives weight to the downside. At the very least it gives no real reason to buy yet.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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