Do We Have a Bottom in the Energy Sector? $XLE

Posted on Monday February 01, 2016

I have no idea how to answer that question, but I will say that the price action is in a very interesting place. As alway I will let the price action lead the way on this one.

That being said, XLE has me watching, but still has a ton to prove. 

Let’s start with what we know. Starting in November, XLE tried to put in a nice bottom. I formed a double bottom pattern, which triggered, re-tested saw some follow through but failed about 1.50 short of it’s target.

In doing so, we see it formed a head like top and a bull trap reversal back down to 58.47 and ultimately lower. 

Where we currently stand is rather interesting.  We have the larger H&S top that did not yet acquire it’s target down at 46.85. And we have the smaller inverse H&S targeting 62.39. I think we are at a very interesting line in the sand, and I see this scenario playing out one of two ways. 

1) In blue. We acquire the upside target causing a major bear trap reversal and we start looking for a bottom to be in. 
2) Further strength is quickly sold. The pattern fails back below the neckline and we make new lows. 

It will be interesting to watch as Oil enters it’s most bullish time of the year seasonally speaking. 

The reason I think that the 2nd pattern is more critical than this first pattern is that even if we do complete the first pattern, we have been here before almost 1 year ago exactly. 
We formed fired and completed the small pattern. (blue below)
Then we consolidated (minor pullback) creating larger right shoulder. 
That pattern appeared to have triggered, but got no follow through and rolled over to new lows. 

Will the same thing happen? I don’t know, nobody does, but it is price action we all should be aware of before we get too bulled up on XLE. 

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