The price of the nearby crude oil future has fallen to a new low for the move down and President Biden has not yet sat down with Saudi Crown Prince Mohammed bin Salman. What's going on? And what does that mean for the popular energy ETF the (XLE) -- the Energy Select Sector SPDR ETF?
Let's examine the charts and indicators.
In the daily bar chart of the crude oil future, below, we can see that prices are testing the rising 200-day moving average line. Equity traders are wringing their hands but futures traders have always focused on much shorter averages because of the leverage in the futures market.
The trading volume shows an increase from early June suggesting that traders and hedgers may be more active. The daily On-Balance-Volume (OBV) line shows a minor decline from early June.
The trend-following Moving Average Convergence (MACD) is bearish.
In the weekly Japanese candlestick chart of crude oil, below, we can see that prices are testing the rising 40-week moving average line. We can see other tests of the 40-week line. Is this test different?
Trading volume has decreased in the past four months. The weekly OBV line only shows weakness from early June.
The weekly MACD oscillator has only crossed to a take profit sell signal. An outright sell signal is potentially a long way off.
In this daily Point and Figure chart of crude oil, below, we can see a downside price target in the $81 area. A trade at $92, however, is needed to refresh the downtrend.
In this daily bar chart of the XLE, below, we can see that the shares are below the rising 200-day moving average line. It is several hours until the close of trading Thursday so we cannot rule out a recovery rally. Even a close below this long-term indicator is not the end of the world, so to speak.
In this weekly Japanese candlestick chart of the XLE, below, we can imagine prices below the 40-week moving average line. We still have Friday's action before the candle pattern is plotted. We'll see what happens.
Bottom-line strategy: Crude oil futures are off their early Thursday low and so are stock prices. Maybe the XLE makes a key reversal day. We'll see.
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