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Energy Rebound Suspicious

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A few weeks ago we looked at the possibility that the Energy SPDR (XLE) was setting up for a double bottom, which, unfortunately did not happen. More recently it has rallied strongly off the low of the XLE bear market, with a PMO positive divergence and contracting volume at the low. This is certainly a good start, but we do wonder about the underlying fundamentals.


While energy stocks are rallying, the Oil ETF (USO) has gotten no bounce at all. Instead, USO has moved into a bearish reverse pennant formation, and the pennant is just below the long-term support line (now resistance).

The weekly chart of USO gives a better perspective, showing the violation of long-term support; however, we are not sure that USO is the best for measuring psychological levels of support and resistance. The bottom panel ($WTIC) shows the actual price of oil, and we can see that current price is well above the important 2009 low, which was at about $35. More significant, we think, is the support line drawn across the top of the cluster forming the 2009 low, which is at about $48-50, not far from current prices.

Conclusion:  The rally in energy stocks is not yet backed up by the price of crude, so we have to assume that it is a bear market rally. The reverse pennant on the USO chart implies that crude has farther to fall, but the $WTIC chart offers some hope that the bottom may come at around $50/bbl.

Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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