Trade view /
29 June 2016 at 9:02 GMT
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
Time horizon: 3–7 days
XLE:arcx daily chart
Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more
XLE:arcx daily development chart
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more