Chart of the Day: XLE Is Bearish, but for How Much Longer?
Turmoil and chaos in the Middle East may override fears of demand destruction around the globe.
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After four straight down weeks for crude oil the SPDR Select Sector Fund Energy Select Sector ETF XLE has come down sharply with the rest of the market.
It makes sense to see lower energy prices if supply constraints are not apparent in the short term but long-term demand conditions come into question. Oil producers like to balance inventories based on the future expectations of demand to maximize the price for themselves in the marketplace. We see plenty of movement, though, for other reasons such as an unstable geopolitical environment.
The XLE, for its part, is simply back to the lower end of a long range. We continued the downtrend line through the price of the ETF in July as shown and now this long trendline is viewed as support. So, we could expect a bounce off this current level but this chart is by no means bullish. Still, a bounce to the low $90s is a high probability.
Earnings last week from the two big holdings in the XLE, Chevron CVX and ExxonMobil XOM, were fair to good, but the price of crude and natural gas will be drivers of performance for the XLE. If the recent correction in crude is over, look for some upside.
We rate the XLE a Two in TheStreetPro portfolio.
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At the time of publication, TheStreet Pro portfolio was long XLE.
