XLE Bids to End Correction and Resume Uptrend


The Energy SPDR (XLE) is setting up to end its correction and resume its bigger uptrend.

First and foremost, the long-term trend is up because the Trend Composite signaled an uptrend (gray circle) in late November when the majority of indicators turned bullish. There are five trend-following indicators in the Trend Composite and all five are currently signaling an uptrend. This indicator, and 10 others, are part of the TIP Indicator Edge Plugin for StockCharts ACP.

The trend is the dominant force at work and we want to look for setups in harmony with this trend. Thus, I am on the hunt for short-term bullish setups and signals when the trend is up. XLE fell some 10% from mid June to mid July and became quite oversold as the Momentum Composite hit -4. There are five indicators in the Momentum Composite and this means four of the five were oversold.

On the price chart, XLE fell to the March-April lows and these levels offered prior support (green shading). Buyers again stepped in as XLE forged an island reversal this week with a gap up (blue oval). A bullish island reversal is a short-term reversal that forms with a gap down, stall and gap up. The two gaps align to create a price island where the bears are trapped with losses.

The uptrend, oversold condition, support zone and island reversal suggest that XLE is ripe for a bounce and continuation of the bigger uptrend. This week's lows mark support and a close below these lows would argue for a re-evaluation.

As the name suggests, TrendInvestorPro specializes in trend identification and finding short-term bullish setups within the bigger uptrend. We constantly monitor a core ETF list with over 120 names and regularly update trend signals. Click here to subscribe.


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Arthur Hill, CMT

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Author, Define the Trend and Trade the Trend

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Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at 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. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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