Some Subtle Divergences to Monitor in the Energy Space

 | Jun 14, 2017 | 1:25 PM EDT
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Stock quotes in this article:

uso

,

xle

The (USO) , the United States Oil Fund, made a new low for the move down today but the (XLE) , Energy Select Sector SPDR ETF, has not made a matching new low so far. Tomorrow is another day and crude oil could continue lower or it could rebound, but for right now we have a divergence.

Divergences are not precise timing tools even when they work so just keep in mind that they are clues to a possible turn or change in the markets. Think of it as an "amber light" -- not green and not red. Let's check the charts and indicators for the USO and the XLE to see if there are any other clues we can glean.

In this daily chart of the USO, below, we can see that prices are below the declining 50-day moving average line but I also want to point out that prices have broken above the line twice in the past three months. The On-Balance-Volume (OBV) line has been weak since early March when prices turned lower. In the lower panel is the 12-day momentum study which shows higher lows from May to June even as prices make lower lows. This divergence tells us that the pace of the decline is slowing believe it or not.

 

In this daily bar chart of the XLE, below, we can see that like the USO, the XLE is below the declining 50-day moving average line. The OBV line has moved lower with prices telling us that sellers are more aggressive. In the lower panel we have equal momentum lows in May and June while prices make lower lows.

This bullish divergence along with the one on the USO might mean we could see some price improvement in the near-term.

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