Short term
Trade view / 29 June 2016 at 9:02 GMT

Energy sector ETF looks ripe for a rebound


The XLE:arcx is an ETF containing energy sector holdings which like many other commodity related equities put in an interesting low in January and is trending higher, making higher highs and higher lows. Lately, the XLE has been rangebound and is either set to correct further or has more business to the upside. From a risk/reward perspective there is currently a setup on the bullish side.

The wave pattern unfolding in the XLE has characteristics of being impulsive and as such it should bring about a five-wave advance, these waves should align in a certain manner from a time cycle perspective. With the recent low on June 27 it is possible we have seen the completion of a corrective pattern from the peak set back in late April. If this is the case we are still lacking a final swing higher. The final swing higher should be able to last until at least Monday when the next important alignment is found.

During the Brexit panic spike lower we breached the $65 Gann pivot but the price has managed to bounce above, indicating a possible failure to break lower. Failed breaks are often followed by strong moves in the opposite direction which in this case could be to our advantage.

Another feature supporting the above reasoning is the fact that the oscillators haven't since the April peak experienced any particular extreme readings which is typical for Elliott wave fours – the final pause before the last thrust higher.

Management and risk description

With support not too far off there is a shot at the $69 pivot. The plan is to buy at market around $66.50 but above $65 for a move higher into next Monday, July 4. Since July 4 is a national holiday in the US we are looking for the price extreme on Friday this week or Tuesday next week. The target is set at $69 and the stop is a daily close below $65.

The main risk to this setup is general equity weakness and a weak oil price.


Entry: Buy at market around $66.50

Stop: Daily close below $65

Target: $69

Time horizon: 3–7 days

XLE:arcx daily chart
XLE:arcx daily chart
Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more 

XLE:arcx daily development chart
XLE:arcx daily development chart
Source: SaxoTraderGO

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
01 July
Johan Berntorp Johan Berntorp
Today is important for this trade, hopefully we'll see a pop higher so we can exit with a profit. From next week on there is the possibility of further rallies but in such a case we'd like to see a continuation and a higher close on Wednesday then any peak that might transpire from yesterday, today or Tuesday and then ideally the close should be above $69.
01 July
Johan Berntorp Johan Berntorp
Think we either pop to 69 or drop to at least close gap lower. We thus have two options, take profits or wait for a pop to/towards 69 and raise the stop to 67,25 or so.


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