Energy Sector ETF (XLE) Drops To Triple Support

It’s not exactly been a high-octane year for oil and energy stocks. Here’s an interesting long-term chart for the Energy Select Sector SPDR ETF (NYSEArca: XLE).

After chopping back and forth for all of 2015, XLE has dropped down to long-and short-term support.

The black trend channel dates back to the March 2009 low, and the green trend line originates at the secondary January 14 low.

Both levels intersect around 77 this week.

Although XLE remains in a chop zone that’s watered down many support/resistance levels, 77 might be a number to keep in mind if you’re thinking about buying/selling XLE (don’t sell until support is broken, and vice versa).

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Is the Smart Money Buying Oil?

If anyone knows fundamental supply/demand forces, seasonal patterns and the potential for curveballs, it’s commercial traders.

Commercial oil traders work with oil in their day-to-day business. It’s the only commodity they deal with. Commercial traders make up about 60 – 75% of the trading volume in futures markets. That’s why they are considered the smart money.

So, is the smart money buying oil?

The chart below plots the price of crude oil against the net futures positions of commercial traders (as reported by the Commitment of Traders report).

Commercial oil traders are almost always net short as futures are used as hedge against falling prices.

Here are the key takeaways:

  1. The smart money reduced short exposure steadily as oil prices tumbled. In itself, that’s good news.
  2. However, net short positions fell to an all-time low and are still well below the levels seen at prior oil price trough. That’s not bullish.
  3. Although oil prices managed to inch higher last week, commercial traders added to their hedges (red circle). That’s bearish.

Technical analysis shows an improving picture for the Energy Select Sector SPDR ETF (NYSEArca: XLE). Click here for detailed XLE analysis.

But oil ETFs like the United States Oil ETF (NYSEArca: USO) and iPath S&P GSCI Crude Oil ETN (NYSEArca: OIL) have yet to catch their footing.

Commercial oil traders are not yet convinced oil has found a lasting bottom. Unless we know something they don’t, it appears too early to buy.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Why Oil Crash is Unlikely to Trigger Stock Market Crash

Falling oil prices in 2008 led to a stock market meltdown. It’s 2014, and oil prices are crashing again. Will stocks follow the 2008 script? We live in a complex world, and there are a number of correlations that may cause a surprise outcome.

This report was originally published in the December 14 Profit Radar Report:

There is some concern that the drop in oil prices will push stocks into a bear market, similar to what happened in 2008. We live in a complex world, and here are some of the ripple effects caused by falling oil prices. A bear market is not necessarily one of them.

Low Oil Prices = Economic Stimulus

According to the U.S. Energy Information Administration (EIA), the United States consumes about 11.5 billion gallons of gasoline and 567 million barrels of crude oil per month (based on 2013 data).

Since late June, the price of regular gas fell from $3.8/gallon to $2.5/gallon. A $1.30 drop in gas prices translates into a monthly savings of almost $15 billion for U.S. drivers.

Since late June, crude oil prices fell from $107/barrel to $58. A $49 drop in crude oil prices translates into a monthly savings of $28 billion.

Without help from the Federal Reserve, the oil market just delivered an ‘economic stimulus’ that could be valued somewhere around $43 billion a month.

Oil vs S&P 500

This year’s oil price collapse differs from the 2008 collapse relative to the S&P 500 (NYSEArca: SPY). In 2008, the S&P 500 topped before oil did. In fact, the S&P 500 recorded its all-time high in October 2007 and was already down 21% by the time oil topped on July 11, 2008.

In 2014, the S&P 500 recorded new all-time highs five months after oil (NYSEArca: USO) started to decline.

The chart below plots oil against the S&P 500 and shows that falling oil (NYSEArca: OIL) prices are not consistently bearish for stocks.

Falling oil prices after unusual spikes or bubbles (1990 Iraq war, 2008 commodity bubble – red shading) have a bigger effect on stocks than falling oil prices after a periods of consolidation (gray shading).

The 2014 meltdown came after a year of sideways trading. If history can be used as a guide, stocks are likely to hold up despite the oil meltdown.

Oil & the Hindenburg Omen

The ominous Hindenburg Omen showed up multiple times in December. The media has published numerous Hindenburg gloom and doom articles in recent years. The most recent Hindenburg clusters occurred in May/June and August 2013 without effect on stocks.

A number of requirements need to be met to trigger the Omen, one of them is a spike of new NYSE highs and lows.

Declining oil prices sent many energy stocks to new lows. Those new lows contribute to the Hindenburg Omen requirements and the resulting signal.

Oil & the Energy Sector

98% of stocks included in the Energy Select Sector SPDR ETF (XLE) are trading below their 50-day SMA. XLE is extremely oversold. The immediate downside from such on oversold condition is limited. A bounce in energy stocks will serve as tailwind for broad markets. UPDATE: XLE just deliverd the most bullish action since June. Will it stick? More details here: XLE Delivers Promising Rally

According to JP Morgan, oil firms account for 18% of the high yield bond market, which explains the 10% drop in junk bond ETFs like JNK (detailed analysis of JNK is available to Profit Radar Report subscribers).

The rest of the report along with detailed analysis for U.S. stocks and oil is available to subscribers of the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF to get actionable ETF trade ideas delivered for free.

Energy Select Sector SPDR ETF (XLE) Delivers Promising Rally

The Energy Select Sector SPDR ETF (NYSEArca: XLE) lost as much as 28.57% from June to December. Every attempt to go bottom fishing was greeted by further losses.

I was nearly tempted to fish for an oil low in late November, when I wrote that: “Oil failed to make a new low this week, but a marginal new low would likely come with a bullish RSI divergence and the potential for a bottom.”

Two days later (November 28) oil lost 10% in one day and I shared this updated outlook with Profit Radar Report subscribers: “Friday’s 10.4% loss was more than just a ‘marginal new low.’ RSI also confirmed the new price lows. Obviously this decline is stretched, and a rally can develop at any given time, but at this point it’s better to wait for a move back above resistance. The next real support/resistance level doesn’t emerge until around 50, but it appears ambitious to expect oil to drop that far.

Turns out the $50 target wasn’t all that ambitious after all (actual low for crude oil futures was 53.60). It appears like oil will test the 50 level next year. For now, the Energy Select Sector SPDR ETF (NYSEArca: XLE) chart looks more promising than oil.

The December 10 Profit Radar Report stated that: “XLE is near parallel trend channel support and may bounce, but with lacking evidence of a more permanent low in oil prices, going long XLE is risky. A drop below trend channel support followed by a close above would offer a low-risk buy signal.”

The weekly XLE chart below includes the trend channel (purple lines) along with helpful prior support/resistance levels (dashed gray lines).

XLE dipped below the trend channel last week and closed back above it on Wednesday. This is the first encouraging sign for XLE.

Yesterday’s Profit Radar Report spells out what’s needed next for this fledgling bounce to gain momentum.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF to get actionable ETF trade ideas delivered for free.

Time is Ripe to Get Dirty with This Out-of-Favor Sector ETF

The energy sector has been hammered by a 31% drop in crude oil prices. OPEC is a mere shadow of its prior glory days and analysts project further declines, as much as another 60%. Ironically, now might be the time to get dirty with oil/energy.

Baron Rothschild’s famous words encourage investors to buy when there’s blood on the streets. What about when there’s oil on the street?

Pull up the Hummer and Suburban, because oil (and gasoline) is the cheapest it’s been in well over four years.

According to many analysts, oil is doomed to fall much further. One price target pegged oil at $30/barrel, another 60% lower than today.

Unless you’re Russia, Saudi Arabia or perhaps a hardcore Prius driver, there’s nothing wrong with low prices, but some charts suggest that the oil/energy sector may be getting ready for a comeback.

The Energy Select Sector SPDR ETF (NYSEArca: XLE) has traversed within a defined trend channel from 2009 until today. As the weekly XLE bar chart shows, XLE recently dropped towards the lower end of the channel.

Essentially the same is true for the SPDR S&P 500 Oil & Gas Exploration & Production ETF (NYSEArca: XOP). XOP more deliberately tested channel support and is trading just above it.

Technical support areas, such as the ones shown above, don’t guarantee a change of trend, but they do highlight price levels where a change of trend is more probable.

The third chart shows the XLE:S&P 500 ratio. XLE underperformed the S&P 500 since April 2011. The gray trend channel suggests that the days of XLE’s underperformance may be numbered.

The November 5 Profit Radar Report wrote that: “We are looking for potential opportunities to buy large caps (Dow Jones, S&P 500) and possibly materials (XLB) and Energy (XLE).”

We got to pick up XLB, which has had a very nice run, and are waiting for a low-risk buy trigger for XLE. It looks like we’re getting close. Continued coverage will be provided via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Crude Oil and Energy SPDR ETF Gushing to Major Support

Crude oil prices have been gushing lower since their June high, down 20%. The same is true for the Energy Select Sector SPDR ETF. Those two charts show that the odds for a tradeable bottom are now above average.

Crude oil has plummeted from $107 to $84.

Are falling oil prices good for the economy or are they a reflection of a weak economy?

It’s a chicken or egg kind of question.

The media is certainly at a loss, as those actual headlines from 2011 and 2012 illustrate:

  • AP: “Higher oil prices threaten global economy” – March 10, 2011
  • Reuters: “Oil prices rise on economic optimism” – January 10, 2012
  • AP: “Higher oil prices offset worries about global economic recovery” – May 25, 2011

A simple look at a comparison chart (S&P 500 vs XLE) shows that oil and stock prices can, and often will move independently from each other.

Regardless on how oil prices affect the overall stock market, oil prices are at important support.

Crude Oil Support

The crude oil chart shows trade being repelled by red trend line resistance in August 2013 and June 2014.

Complex Analysis Made Easy – Sign Up for the FREE iSPYETF E-Newsletter

After a 21% drop from high to low, oil is sitting right above important support around 84.

Energy Select Sector SPDR Support

The Energy Select Sector SPDR ETF (NYSEArca: XLE) matched crude oils gush lower, down 20% from its high.

The 81 level offered important support in December 2007, March/April 2011 and February 2014 (blue dots).

Considering the steepness of the recent selloff and proximity to important support, there’s a good chance oil and XLE will find a tradable bottom somewhere around current trade.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Weekly ETF SPY: XLE and Oil– Fuel or Fool?

Despite a strong couple of weeks, the energy and oil sector has been one of this year’s under performers. If the Energy Select Sector SPDR ETF (XLE) is able to overcome nearby resistance, it will likely become the benefactor of sector rotation into the energy sector.

Although the energy sector is up 13% already year-to-date, it has been lagging behind many industry sectors. The Energy Select Sector SPDR ETF (XLE) is now butting up against important resistance.

Does XLE have enough fuel to bust through resistance or will it fool investors? In other words, will XLE fuel or fool portfolios?

The weekly XLE chart shows prices at cross roads. After three consecutive up weeks, XLE is pausing at the triple resistance cluster around 80.50 – 81.50.

The performance of the energy sector sports a close correlation to the price of oil, so what are oil prices up to?

Unlike XLE, crude oil futures have not been able to climb to new recovery highs, but similar to XLE, crude oil is bumping against double trend line resistance around 97 – 98.50.

How to Profit with Resistance Levels

Resistance levels, like a dam contain prices … until broken. Depending on the overall technical picture, investors may go short against resistance or buy once resistance is broken.

Following a strong 3-week run into resistance, XLE and crude oil may need to take a breather before advancing further. While this may result in lower prices, it doesn’t have to be bearish for the long-term picture.

Regardless of the exact route, a break above resistance would be a buy signal. Broken resistance will then turn into support and support should be used as stop-loss level.

The ETF SPY provides FREE weekly trade set ups. >> Sign up for the free newsletter to get future ETF SPY ideas.