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Energy SPDR Breaks Neckline Support

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The Energy SPDR (XLE) has been one of the weakest sectors this month. In fact, the chart shows XLE breaking support from a large Head-and-Shoulders reversal pattern. The left shoulder peaked in March, the head peaked in April and the left shoulder peaked at the end of May.  With a 7% decline the last 13 days, the ETF broke below the lows extending back to February. This confirms the pattern and targets a move to around 65. The height of the pattern (81 – 73 = 8) is subtracted from the support break (73 – 8 = 65) for a target.

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Click this image for a live chart.

At this point, traders need to be careful that the right half of the Head-and-Shoulders pattern does not evolve into a mere falling wedge. Currently, the wedge is clearly falling with no signs of strength. A move above the wedge trendline and resistance at 76 would reverse this fall and put the bulls back in control.

Announcement from the Author

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Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. Learn More
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