Energy Sector Analysis and Technical Update

By Andrew Nyquist
The energy sector lagged the financial market for the better part of the fourth quarter 2012 before showing signs of life into year-end. In fact, the “party” started on December 31 with a big gain. And the momentum carried over to the next session with a gap higher to ring in the New Year. But what I found most interesting about this technical setup was the price action that preceded the move higher. See chart below.

In its simplest terms, this is called a “fake out.” However, I like to call this type of setup a pendulum reversal. As you can see below, the price moved higher into resistance, increasing the bulls hopes of a breakout. The move higher was then followed by a swift reversal lower that took out the short-term trend line on its way to the intermediate term trend line. This action quickly shakes out the “weak” longs and brings in overzealous bears. And finally, the stock reverses higher.

This has left the sector in good shape for a retest of the September highs. As well, the 50 day moving average is turning higher, the uptrend is still in place, and the biggest weighted participant in the XLE Energy Sector is Exxon Mobil (XOM). And it’s chart is still bullish (see chart below). That said, keep an eye on the intermediate term trend line and 50 day moving average (both at 71). The bulls will need these technical support levels to hold.

Trade safe, trade disciplined.

Sign up for our FREE newsletter
and receive our best trading ideas and research

Energy Sector (XLE) Chart:

energy sector analysis

Exxon Mobil (XOM) Chart:

Twitter:  @andrewnyquist and @seeitmarket

No position in any of the securities mentioned at the time of publication.