A Buy Setup in XLE

The Sector SPDR Trust Energy ETF – XLE

There isn’t much I like here on the buy side, even after this pullback, but I do have a keen focus on the energy sector for a couple of different reasons. The sector has been exhibiting relative strength all year, it has experienced a solid pullback and the weekly and daily chart structures still remain strong on the buy side.

Check out the video below in which I walk through key technical setups in crude, energy, and one of my favorite energy stocks that is setting up right now!

Major Macro Forces at Play

Additionally, there are several key macro factors that are flashing warning signs that lead me to believe that the next big moves will likely be in commodities versus equities. Well, except if you’re looking at a company that moves in relation to high commodity prices, like energy stocks. After the nice market rally we saw this summer, the pullback has started and it’s caught a lot of people that got caught FOMO-buying at the highs. This of course can lead to a quick cascade lower. That’s what we are seeing right now, and I think we all know it was long overdue.

An Overdue Pullback

But, the primary question here is, how long will this fade last? Right now, while the put/call has gotten elevated again, it still has room to run. When the put/call gets elevated, that means that traders are short (again) and it helps keep a bottom in the market, versus when everyone is caught long. So, that is one vote for the buy-the-dip crowd. But, to me, it’s all about whether or not buyers come in.

The two primary zones I’m targeting in the S&P for potential buys (IF they hold) are 4100 and then 4000 after that. Without a hold and sustainable bounce at these levels, the selling pressure will continue to outweigh the (lack of) buying pressure. It’s with that, that down we continue to go.

So, where do we go from here? Bulls, the ball is in your court. Are you going to show up to play?

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