Medium term
Trade view / 07 June 2016 at 9:04 GMT

Energy sector stocks poised for ascent

Trader /
United States

As US stocks continue towards new heights, more defensive sectors as well as dollar-sensitive areas like energy stocks are coiling up for further moves higher. The energy sector ETF of the S&P 500 looks poised for another leg higher.

On May 30 I discussed a bullish trade setup in energy/integrated oil company Chevron. The stock still looks bullish and upon a break past resistance it would signal a breakout worth taking for a trade.

The energy sector ETF of the S&P 500 (XLE:arcx) in April made a clear statement when it broke about the down-trend channel represented by the two blue parallels. Over the past few weeks, however, the price action has mostly been sideways as a thus far constructive consolidation of the April breakout was taking place.

S&P 500 Energy Sector ETF

Source: Saxo Bank. Create your own charts with SaxoTrader click here to learn more

On the daily chart we see that this recent multi-week consolidation is taking place nicely above the red 200-day simple moving average and right at a diagonal resistance line (black). By definition, the longer the XLE etf coils up below this diagonal resistance line and above the 200-day moving average the better the odds of another leg higher.

S&P 500 Energy Sector ETF
Source: eSignal

Management and risk description

From a risk management perspective it likely doesn't pay to chase energy stocks higher until a breakout is finalised. Looking at the chart of the energy sector ETF of the S&P 500 (XLE:arcx) however this looks to be taking place very soon.


Entry: Buy the XLE etf or CFD at $68.20 or higher

Stop: $66

Target: $72

Time horizon: 2–4 weeks

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
14 June
dabra1967 dabra1967
Serge ; Is possible to enter into this trade at this moment?
14 June
Serge Berger Serge Berger
Personally I am not looking to buy here. There was a small trade as I laid out above but with the reversal late last week that trade is off the table again. I am not looking to do anything in this space right now, neither long nor short


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