Deep Inside the Handles of the Energy ETF

• Posted by Greg Harmon
• on April 8th, 2016

Oil and Energy stocks have been an obsession of the market since oil started falling. It is no wonder, as some of these stocks have fallen 70 or 80 or 90%. Everyone wants to be there when they turn around. Of course there is no guarantee that they won’t just move sideways for a long time, but a rebound of only 30% of the down move could make your portfolio look great.

It is with that backdrop that it is worth studying the movement in the Energy ETF ($XLE). It has moved in a tight range since the beginning of the month. The chart below shows the 15 minute, very short term, price action over that period. And it reveals a Cup and Handle pattern. This pattern would give a target of 63 if the price moves out of the Handle.

Examining that Handle shows a lot of positives despite also being a downward channel. The Momentum is ticking up and turning Bullish. The MACD is crossing up and the RSI bounced off of the 40 level. The 50 period SMA is moving up towards a Golden Cross, through the 200 period SMA. A continued move higher would trigger a buy through the channel which would also break that 200 period SMA.

So why does this potential $1.50 move look so important? The broader scale explains. The daily chart below also contains a Cup and Handle pattern. Some may also see an Inverse Head and Shoulders pattern. Either way both would give a target price objective of $80. And when does the target become active on the Cup and Handle? It just happens to be at the same place the 15 minute chart shows, over 61.25.

The momentum in the daily chart is in bullish ranges but fading. So the longer time frame needs the help of the shorter time frame to reverse it higher. This is why it makes sense to watch both handles in the Energy ETF.

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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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