Energy Select Sector SPDR (
is due for a pullback.
Though I have not reviewed this ETF in ChartWatch for a while,
it's been a favorite of mine in the past. In fact, I recommended
buying the shares of
this energy ETF
near the $63 support zone (blue arrow) in June.
ChartWatch first noticed
this support area in May.
Now that the shares have rallied 20%, it's time to start booking
those profits. Though I continue to favor energy stocks as
long-term investments, the sector (and this ETF) appears to have
limited near-term upside.
The shares are at a long-term resistance area (blue line) that
hasn't been too kind to buyers in the past. Sellers are very
active in this zone. In fact, the last two times the shares
reached this level, the results were sharp corrections to the
tune of 11% and 24%.
This chart shows the price of
shares along with an important resistance level to
So with oil having fallen back to $90 from $98, combined with
this ETF's long-term resistance near $78, I'd expect the shares
to come under pressure in the short term. Though I suspect the
decline will be both fierce and sizable, it's unlikely to persist
for an extended period.
The fundamental story behind energy continues to favor holding
related stocks for the long term. So any pullback could be bought
with confidence. I'd initially be looking for a decline to $75.
However, given the magnitude of previous corrections, $71 is well
within reach. Aggressive traders can initiate short positions
today. But I don't view the probable pullback as a long-term
shift in trend. Take profits quickly, then look to enter long
Equities mentioned in this article: XLE
Positions held in companies mentioned above: