The energy space has done what markets tend to do, confound the most. Give credit where it is due as the ETF is higher 10 of the last 11 sessions, and the one day down on 9/21 fell TWO pennies. The chart has responded well with a bullish harami and hammer candles on off its rising 200 day SMA on 8/15 and 9/7. Tuesday however it did fail the break the series of lower highs dating back to 5/22. On the XLE WEEKLY chart (arithmetic) one can see it approaching the 78/79 area which has pushed the name back dating back to weeks ending 12/16/16, 1/26/18 and 5/18/18. The week ending 5/25 broke above the long ascending triangle trigger of 79 intraweek, but reversed hard slumping 4.5% in the fourth largest weekly volume of 2018. The price action should be respected however as it fails to break meaningfully lower, and could the fourth time be the charm to break above the 78/79 level, if it can get there, in a nearly two year long ascending triangle pattern? You get the feeling it has a beach ball underwater effect if it takes out the round 80 number, and crude just may hit some of those lofty, brave $100 targets in the process.
It is always a good idea to examine how the generals in a sector are acting. They will often give you foreshadowing to when a group may be ready to stall or roll over. If the leaders are starting to show technical signs of weariness it could be a warning for the entire space. The chart below of FANG, is at a critical juncture, a fracking line in the sand if you will, pun intended. This name has not gone the way of a PXD, a former leader now 17% off most recent 52 week highs (FANG is 3% off its), but it is at a make or break moment here. The last 2 weeks it is up a combined 14%, and this week obviously early has tacked on nearly another 5%. The bulls and bears can paint there narrative here, and both have good arguments, and why it is a “nothing to do” stage presently in my opinion. Let PRICE confirmation be your guide. If it breaks above a bullish ascending triangle trigger of 138 it will carry a measured move to 166. If it fails here as price has memory, and it is in the vicinity of several bearish engulfing candles, and an upside gap fill, and dealing with a plethora of spinning top candles in mid July-early August, do not be surprised. I am leaning on the bearish side here as trade is very wide and loose, the opposite of bullish taut movements.
Energy was the best sector performer for the second day in a row now, and is now the best acting major S&P group on a one month basis, just climbing past healthcare. On a 3 month look back it is the sixth best gainer, and for 6 months it is fourth best. Not a lot to really take away from that observation, except for the fact it is showing very recent relative strength. However on the chart below we have a glimpse of how the XLE has operated the last 5 years, and as you can see October which is just around the corner is historically soft. It has CLOSED above where it opened the month just 25% of the time. November and December are better but still showing just a 50/50 likelihood of an advance.