Saturday, January 19, 2008

Pullback To Buy In Energy Stocks?



This past week energy stocks got hit hard along with the rest of the market. If you look at the above chart of XLE you'll notice a few technical signals that suggest a potential buying opportunity is setting up.

First of all, notice the high volume that has just taken place. In the past, whenever XLE exceeds a daily volume of over 40M for a few days, a bottom is usually established. This has happened repeatedly over the last 2 years and in each instance a rally took place shortly after.

Also notice the position of the stochastic oscillator. The stochastics are in the buy zone and over the past 2 years this type of oversold condition has almost always led to a rally.

So now we have two reasons to be looking to buy.. We have an oversold condition and heavy volume.

As of now I have no position in XLE and I have no buy signals as of yet. What I am looking for is maybe a 1-2-3 type of bottom to take place or maybe some kind of bullish weekly or daily candlestick pattern to develop. The reason I'm posting this chart now is because XLE will be on my watchlist for a potential long if things line up for a low risk entry.

9 comments:

mycousinvinny38 said...

Be careful....
The earlier buy points didn't take out the prior low as we just did.

Romeo Bravo said...

My Cousin:

The June 2006 low took out the Feb 2006 low.

mycousinvinny38 said...

Missed that....

That rally (from June06) didn't reach the prior high.

Kevin said...

Hi Guys,

I haven't bought anything...I'm just watching XLE....

chiu said...

Kevin,

I like your analysis. I have put on an OIH calendar spread recently having the ideas that it will be range trade, now the position had broken the past 4-5 months range and negative now.

Technically this falling knife price has broken the uptrend line, which is bearish.

Nevertheless, I like your way of picking an entry via 1-2-3 reversal and candlestick formation.

I agree with your analysis.

Chiu

Gary said...

I would let this 4 year cycle low play out before buying anything. We are going to gap daown big in the morning. Hostorically these kind of gaps don't fill they just keep selling all day. These crash days are also never the bottom. After a bounce the markets almost always fade away to new lows eventually.

Gary said...

I suspect the precious metals are going to be a better investment at this point rather then energy. Energy outperformed during the first leg of the commodity bull. Precious metals and softs should be the workhorses of this phase of the commodity bull. Also the gold oil ratio has gotte to stretch on the down side. It is time for gold and silver to outperform.

Elaine said...

Can you explain what you mean by a "1-2-3 type of bottom." A triple bottom?

Kevin said...

Hi Elaine,

A 1-2-3 bottom is basically the first higher low...

point 1 is the low of the move down....point 2 is the top of the first rally, point 3 is the low of the first higher low... Entry to buy would be when the point 2 high is taken out..

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