Medium term
Trade view / 18 August 2016 at 9:11 GMT

Energy sector stock coiling at $70

Trader /
United States
Instrument: XLE:arcx
Price target:
Market price:

Energy-related stocks in the S&P 500, i.e. the energy sector as represented by the S&P 500 Energy Sector ETF (XLE) have seen quite the ride year-to-date. All else being equal and despite a big rally off the January lows, this sector looks poised for further upside in the second half of 2016.

After a big overshooting rally in the summer of 2014, which pushed energy stocks and the XLE etf above the multi-year rising channel (parallel lines), a quick and vicious trend reversal set in. By December of that year the major trendlines had broken and by the spring of 2015 the selloff began its next leg lower.

The final flush came into the January lows this year and while it is far fetched to call a new major bull market in energy stocks, the picture from a structural perspective, thanks to the v-shaped reversal this year is looking much more constructive.

S&P 500 Energy Sector ETF
Source: eSignal

On the daily chart, we see that the XLE etf has been in a consolidation phase since early June and arguably even since late April as it continues to coil up below the November 2015 reaction highs, i.e. the black horizontal line.

This line comes in around the $70 mark  and a decisive break above this line, particularly on a weekly closing basis could get a next leg higher in this space underway. The longer the XLE etf consolidates below the $70 area the better the odds of a more meaningful break higher.   

S&P 500 Energy Sector ETF
Source: eSignal

Management and risk description

For this setup it is important not to anticipate it but rather to get into a long position upon a clear daily or preferably a weekly close above the $70 area. 


Entry: buy the XLE etf or CFD upon a clear close above $70.

Stop: $67.

Target: $75.

Time horizon: 3-4 weeks.

— Edited by Martin O'Rourke

Non-independent investment research disclaimer applies. Read more


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