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
President, INO.com
Co-Creator, MarketClub

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Last Week's Volatility Could Be A Harbinger Of Things To Come

There's a war going on right now and I don't mean overseas, I mean right here in the markets. Last week was a perfect example as the intraday swings of the S&P500 clocked in at a staggering 6.5%. Market volatility often is a precursor of things to come, and the irony of all this action was that the market closed with a loss of -0.65% for the week.

The net weekly change for the DOW was -0.53% and there was an even smaller loss of -0.42% for the NASDAQ. All three indices formed an important Japanese candlestick pattern, a weekly doji candle. Why is this important? A doji candlestick often signals indecision in the market. When the doji forms in an uptrend or downtrend, this is normally seen as significant, as it is a signal that the buyers are losing conviction when formed in an uptrend and a signal that sellers are losing conviction if seen in a downtrend.

What To Watch For This Week

A lower weekly close would indicate to me that the buyers are beginning lose control of this aging bull market. Here is the "line in the sand" for each of the indices that I am watching. Once below this line, watch for heavy liquidation to come in across the board.

DOW: 17.262 S&P500: 1,992 NASDAQ: 4.090

Gold Is Now Officially On The Move

You might remember on January 7th, I wrote a post on gold (FOREX:XAUUSDO) and the key neckline level. The key neckline in gold was broken to the upside last Friday when gold closed out the week with a very positive 2.9% gain. I now have a confirmed upside target zone of $1,340, which equates to about $132-$134 on the ETF, GLD. To follow all of the entry and exit points for gold, check in daily with the World Cup Portfolio.

How High Can The Dollar Go?

The U.S. Dollar Index (NYBOT:DX) continues to push higher against most currencies with another weekly gain of 0.85% in the Dollar Index. The question on everyone's mind is, how high can the dollar go without a correction? To this observer, it appears that there are technical storm clouds gathering that could spell trouble for the dollar. Take a look at the RSI indicator and check out the negative divergence that is building on the weekly charts. If you are long the dollar, you might want to review and tighten your stops.

How Low Can Crude Oil Go

That's a question better asked to Saudi Arabia as they continues to keep their oil spigots open to the world. Here is my analysis, the trend is down and picking bottoms or tops in markets is not a high percentage game. Before crude oil (NYMEX:CL.H15.E) changes trend, it needs to begin to base out and find a floor. I will leave picking bottoms to others. Meanwhile, the trend is your friend.

Have a Different View?

I invite your comments, pro or con. As always, we appreciate your feedback.

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Every success with MarketClub,
Adam Hewison 
President, INO.comCo-Creator, MarketClub



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