Low Energy In Energy Sector
Published May 7, 2017
The Energy Sector SPDR Fund (XLE) has been in a defined bearish trend for all of 2017. Due to this bearish movement, the 100 day moving average (DMA) is about to cross below the 150 DMA. This actual event has occurred 15 times in the history of the fund and has a minimal drop of 0.263%. It has a median drop of 2.067% and maximum drop of 38.054% over the following 16 trading days. Although I typically write on events that have occurred, this event is likely and greater benefit could be gained by making moves earlier.
When we take a look at other technical indicators, the relative strength index (RSI) is at 40.2699. RSI tends to determine trends, overbought and oversold levels as well as likelihood of price swings. I personally use anything above 75 as overbought and anything under 25 as oversold. The current reading declares the fund has been moving lower. The RSI has been trending lower since May 2016. Even though the RSI typically cycles between overbought and oversold levels, that has not necessarily been the case with this fund. Overall the RSI is failing to make newer highs which is another significant signal of downward movement. Only once over the past year has the RSI broke above this trend before immediately following suit and heading down. This overall downtrend should continue as long as the RSI stays below this trendline.
The true strength index (TSI) is currently -19.3683. The TSI determines overbought/oversold levels and/or current trend. I solely use this as an indicator of trend as overbought and oversold levels vary. The TSI is double smoothed in its calculation and is a great indicator of upward and downward movement. The current reading declares the fund is down.
The positive vortex indicator (VI) is at 0.7572 and the negative is at 1.0678. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. When the negative level is higher than 1 and higher than the positive indicator, the overall price action is moving downward. The current reading declares the fund slightly moving up recently, but should begin its downtrend again.
The stochastic oscillator K value is 21.2870 and D value is 19.7285. This is a cyclical oscillator that is highly accurate and can be used to identify overbought/oversold levels as well as pending reversals and short-term activity. I personally use anything above 80 as overbought and below 20 as oversold. When the K value is higher than the D value, the stock is trending up. When the D value is higher that the K value the stock is trending down. The current reading declares the fund has been flirting with oversold territory for at least two weeks. Most likely one of two things will occur. The fund will continue to slowly move down with up days causing the stochastic to stabilize and rise even though the fund continues its downward bias. The second possibility would have the fund rise up and out of the downtrend either temporarily or permanently.
Considering the moving average crossover, RSI, TSI, VI and stochastic levels, the overall direction appears to be pointing down. Based on historical movement compared to current levels and the current position, the stock could drop at least 3% over the next 26 trading days.
DISCLOSURE: I currently do not have positions in the stock mentioned above. I do not plan to enter a position within the next 72 hours. Historical movements and technical indicators should never be the sole basis for entering positions involving risk. Make sure appropriate research is conducted prior to taking any risk in a marketplace.