Thursday, January 22, 2015

Is this ETF Laying the Foundation for a Rally in Crude Oil?

Picking bottoms is not something one should do if you're going to be a successful trader. But looking at market that may be forming a bottom is a good exercise, and one that you should be doing on a regular basis. I had done this before gold reversed to the upside traded over $1300 an ounce. Maybe it's time to look at crude oil and see if it's beginning to set itself up for a move to the upside.
Technically, the Trade Triangles remain negative on crude oil, so there is no reversal showing up with those technical tools. The story is a little bit different with the RSI indicator. This particular indicator is showing that there is a big positive divergence on the Energy Select Sector SPDR ETF (PACF:XLE), and it is one that spans months.
Today I'm looking at the ETF XLE and the fact that if it closes higher for the week, it will be a positive sign. The previous week saw a very important Japanese candlestick formation call a "Dragon Fly Doji" this can be interpreted as a strong indication of reversal. It all depend's on how XLE closes this Friday.
Should XLE close higher than ($76.56) the market will have created a "Bullish Engulfing Line" confirming that the previous weeks, "Dragon Fly Doji" was indeed a reversal to the upside.
Take a look at both charts, one is a daily graph showing a large positive divergence on the RSI indicator. The other graph is a weekly Candlestick chart highlighting the “Dragon Fly Doji” and the potential for a “Bullish Engulfing Line” to occur this week.
So here is my 3 step strategy for the Energy Select Sector SPDR ETF (PACF:XLE):
1. I'm going to watch this market closely and have it on my radar.
2. I want to watch the 50 line on the RSI. A close over this line will be another important clue and strong indication that this market is bottoming or has bottomed out.
3. I'm also watching the weekly Trade Triangle on crude oil, should this Trade Triangle turn green, you'll want to BUY XLE, as it closely tracks crude oil.
Now let's see how the Energy Select Sector SPDR ETF (PACF:XLE) does in the future.
Every success with MarketClub,
Adam Hewison
Co-Creator, MarketClub

Get all of Adams articles in your inbox and it's FREE....Just Click Here!

No comments: