The Oil & Gas Equipment & Services ETF (XES) was one of the leading industry group ETFs in the spring after it surged some 164% off its November low. This was clearly a massive gain and the ETF was entitled to a rest. Big meals require long digestive periods and this is exactly what XES did as it traded flat the last nine months. Long-term trend followers might wait for a range breakout to turn bullish. Astute traders can use range support and RSI to identify reversals within the range and get the early jump. Let's investigate.
The chart below shows this big digestive period marked as a large rectangle consolidation (blue outline). There is a clear support zone and XES is reversing off this zone with a solid bounce this week. The blue arrows show a gap down on November 26th and a gap up on December 7th. It is not exactly an island reversal, but it is clearly a reversal off support, and this is bullish price action.
The indicator window shows RSI dipping to a downswing zone three times (blue shading). The cup is half full when RSI is above 50 (upswing) and have empty when RSI is below 50 (downswing). Notice how RSI stayed below 50 for several weeks in March-April and July-August. The break above 50 signaled a momentum breakout and this confirmed the reversals off support. The same thing is happening now as RSI makes a bid to break above 50.
Looking for more setups like these? Check out TrendInvestorPro.com. Each week we pick the best setups from a core ETF list and include them in the ETF Trends, Patterns and Setups Report. There is also a regularly updated broad market timing model to keep us on the right side of the market trend and an ETF ranking table.
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Arthur Hill, CMT
Chief Technical Strategist, TrendInvestorPro.com
Author, Define the Trend and Trade the Trend
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