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Why the energy sector will see more upside: Technician

Lawrence Lewitinn
Lawrence Lewitinn

Energy stocks have been falling for well over a year, but according to one well-regarded technical analyst, the sector may see a short-term rebound.

Katie Stockton, chief technical strategist at the brokerage firm BTIG, is encouraged by recent moves in the ETF tracking the SPDR Energy Select Sector Fund (trading under the symbol XLE).

XLE “has exceeded its 50-day moving average for the first time since breaking down below it in May,” said Stockton. “That marks a significant increase in momentum.”

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Courtesy of Katie Stockton, BTIG

But the recent rebound in XLE has to be put in the perspective of its longer-term downtrend, she cautions. Stockton notes that the energy sector ETF found itself in a brief countertrend in the first half of 2015, only to resume its downtrend.

“That's what we may be in store for here as well,” she predicted. “We'll see some follow-through ultimately.”

Stockton is eyeing the $72 per share level as key resistance for XLE. A move to that level would mark a 6 percent increase from Thursday’s close of $68.42.

“The rotation into energy has been associated with strength in crude oil prices,” she said. “The crude oil chart looks very similar to the chart here of XLE, where you see a nice relief rally or oversold bounce within a broader downtrend. Already we've seen some resistance of those cleared.”

Should crude oil (CLZ15.NYM) prices rally to $50 per barrel, or about 9 percent higher than Thursday’s closing price, “you'll see again some nice follow-through here, and $72 will become a reality for XLE,” forecasted Stockton.

 

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