The bottoming formation in crude oil ($WTIC) continues to take shape and the beneficiary clearly has been the energy ETF (XLE). Since dipping below $40 per barrel to begin August, the WTIC has rallied more than 20% in the past three weeks and is now nearing $50 per barrel. A break above $50-$52 per barrel would be technically significant as it would confirm a bottoming (and quite symmetrical) reverse head & shoulder pattern with a measurement above $70 per barrel. Check out the pattern:
The pattern does require a breakout for confirmation, but the possibility of a bottom in crude oil has sent traders scurrying into energy shares with the XLE performing very well relative to the benchmark S&P 500. I would continue to overweight the energy space as long as the relative uptrend remains in play. Check out the relative chart:
Note that both relative support and the relative uptrend line both intersect at .031. Unless this area of support is violated, I'd continue to overweight energy stocks.
Happy trading!
Tom
