XLE Energy Gaps through Key Support

Apr 20, 2009: 8:53 PM CST

The Energy ETF (XLE) has lagged the broader market, and now it has gapped down through all major support on its daily chart, which could be a bearish omen of things to come.  Let’s take a closer look.

Notice that the XLE failed to break above its February high like some other ETFs did (like XLF – Financials and XLK – technology).  This is a sign of relative weakness both to other sectors and to the S&P 500 (which ‘tied’ its February high).

Here are some other quick chart components to see:

  1. Negative Momentum Divergence
  2. Negative Volume Divergence
  3. Break-down out of Rising Trendline
  4. Break-down out of Triangle Consolidation
  5. Breakdown through the confluence of 20 and 50 day EMA
  6. Subsequent “Breaking” of the Cradle Confluence

Without going into detail on all of these, make at least a mental note of these and that the future pathway seems to be to the downside.

As a caveat, we all deal in probabilities, so there’s no guarantees price will fall to challenge lower levels, but the odds are stacked against Energy Bulls now.  Also, note that Crude Oil itself will almost certainly suffer if we get a continued broader market swing down.

Corey Rosenbloom
Afraid to Trade.com

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11 Comments

11 Responses to “XLE Energy Gaps through Key Support”

  1. Anonymous Says:

    do you see a retest of trendline?

  2. Corey Rosenbloom Says:

    Anon,

    It’s possible but based on the Price Expansion/Contraction principle, after we see a move out of consolidation, it tends to be a momentum/trend move which is not required to test the breakout zone.

  3. terry Says:

    Oil was one of the first to break out as well.
    It started over two weeks before the financials and S&P.

  4. Corey Rosenbloom Says:

    Terry,

    Good point. Crude has had an impressive run off its lows and Rounded Reversal already.

  5. Joe Says:

    Good points Corey. Was looking at it from a different angle. Elliot Wave 2 pull back but triangulated which could then consolidate some more creating a larger triangle and break out to the upside in a third wave. If in fact a first wave was completed. Wave 2’s up and down can be consolidating sometimes and when they are wave 4’s tend not to be.

  6. naveen Says:

    hey guys,
    its wonderful to see and learn through u guys !! wish and would be thankful if any one of u would care to teach me these lessons on elliot waves in person . i am in bangalore india. my email id is naveenkumar1977@gmail.com and ph.no. 09845011001.or atleast we could discuss on;line.

  7. Vasu Says:

    Cory :
    In point and figure analysis XLE is on lesser relative strength when compared to SPY ( a column of O’s) and in the verge of breaking into sell signal…

  8. Vasu Says:

    Cory :
    In point and figure analysis XLE is on lesser relative strength when compared to SPY ( a column of O’s) and in the verge of breaking into sell signal… The crude oil USO relative strength compared wrt the market SPY is already on a sell signal

  9. Corey Rosenbloom Says:

    Joe,

    That’s indeed possible.

    Generally, triangles occur prior to terminal waves, meaning most frequently in W4 or WB – from what I can tell, they rarely occur in W2s.

    But if this is wave 2, it has a little room to run down before violating the “Wave 2 cannot retrace 100% of Wave 1” rule.

  10. Corey Rosenbloom Says:

    Naveen,

    It’s not the fastest way, but probably the best way to learn Elliott is to read Frost/Prechter’s “Elliott Wave Principle” book or Glenn Neely’s Elliott Book.

  11. Corey Rosenbloom Says:

    Vasu,

    Thank you for sharing your insights.

    I don’t check P&F charts as much as I should.