Critical Price Support Below In Energy Select Sector ETF (XLE, USO, OIL, DBO, SCO, OIH, DIG, DUG, ERY, ERX)

While scanning the major Sector ETFs, a shelf of support (pattern) in the Energy Select Sector SPDR ETF (NYSE:XLE) – caught my eye.

Let’s take a look at the current support level at $72 and then note a logical downside target if the key support level here fails to result in a rally as the next swing.

You don’t need magic indicators to tell you that $72.00 is a critical short-term price boundary in the XLE fund.

That’s because buyers and sellers are ‘testing’ this level for the third time in 2011, and today took us to a fresh new intraday and closing low for 2011.

This means buyers have to step-it-up here and support price here, else we have a confirmed/triggered sell signal that allows for a play to the next logical support shelf at the $68 level which – as we’ll see – is confluence support.

Pattern-wise, it looks like a distributive phase resembling an imperfect Head and Shoulders reversal pattern.  The $72 level reflects a strange neckline of the pattern – it’s something to watch.

Volume is showing distribution – namely volume spikes during the sell-phases and then diverges or declines during the rally phases in price.

Price is already under the 20 and 50 day EMAs which are both separating bearishly at the $75 level.

In other words, the only thing bullish going for price right now is the support at $72 – should buyers lose that and we would expect sellers to capitalize on the failure, which would result in a push back to the confluence support at $68.

Here’s the weekly chart which reflects the confluence:

There was a clean negative momentum divergence going into the highs at the $80 level – that’s one for an educational reference.

Price officially broke down under the rising 20 week EMA at $74.00, and this break sets up a potential retrace back to the rising 50 week EMA at $68.70.

Coincidentally, the rising 200 day SMA – a critical target once support fails on the daily chart – rests also at $68.40.

Here’s the main idea – should buyers fail to hold price (and force a rally) this week at the critical $72.00 price support shelf, then odds shift to favor further downside action, most likely to the multi-timeframe confluence at the $68.50 region.

Of course, watch crude oil for additional clues – should it continue breaking down through its support, then we’ll almost certainly see the $68.50 target achieved in the Energy ETF.

Tickers:  United States Oil ETF (NYSE:USO), iPath S&P GSCI Crude Oil (NYSE:OIL), PowerShares DB Oil (NYSE:DBO), ProShares UltraShort DJ-UBS (NYSE:SCO), Oil Services HOLDRs (NYSE:OIH), ProShares Ultra Oil & Gas ETF (NYSE:DIG), ProShares UltraShort Oil & Gas ETF (NYSE:DUG), Direxion Daily Energy Bear 3X Shares (NYSE:ERY), Direxion Daily Energy Bull 3X Shares (NYSE:ERX).

Written By Corey Rosenbloom, CMT From Afraid To Trade  

My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.

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