Energy sector provides decent trading opportunity

The energy sector within the S&P has just broken out above previous resistance, and the technical setup suggests that it now provides a decent trading opportunity with a defined exit point should the trade fail to work out.

The chart below shows the price action of the energy sector ETF (XLE) over the past three months. Having failed to break above overhead resistance at around $79.90 on several occasions, the price then fell to a low of $73.51 on 17 April.

Since the April low however, the fund which includes companies such as Exxon Mobil, Chevron, Schlumberger and Conocophillips, has begun to form a nice uptrend channel with multiple touch points. Having broken above what was resistance at $79.90 the fund came back down to retest this level which then became support.

A 3 month (2 hour) chart of Energy Select Sector ETF (XLE) (Click on the chart for a larger version)

A 3 month (2 hour) chart of Energy Select Sector ETF (XLE) (Click on the chart for a larger version)

Chart courtesy of stockcharts.com

The positive short-term trend has just been confirmed by the crossing of the 9-day EMA back above the 20-day SMA, and the longer-term trend is also positive (both circled).

All the time the lower blue trend line provides support the XLE fund provides a decent potential trade, and the green horizontal support line at around $79.80 provides an ideal initial level for a stop loss.

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