Energy Update

The long I chose for my energy exposure for this move up we've been expecting is ERX which is up +4.78% today, this is a leveraged long which I felt comfortable with being I'm currently looking for a strong shakeout move to the upside followed by an opportunity to set up shorts for the next and serious leg down. Energy has been the last sector of the 3 important sectors I talked about yesterday, the "3 Pillars" to finally come along and get in to line with the set up that has been forming. We saw this shaping up yesterday, today we are seeing it in action which in itself almost seems like an endorsement of Romney, being it's not just oil, but the whole Energy sector including services.

Many of us used leveraged ETFs as they are the right tool for the move we are looking for; when it comes time to sell them and look at shorts, we'll be looking at non-leveraged individual names for a longer move/trend.

This is what we predicted, this is what has happened across most of the market and the final confirmation of this near term market movement seems to be starting to move in the direction we set up our short term long trades. Since the decline from the mid-October bounce and decline (we got both directions correct and traded both) the prediction was for a range bound market and for that to build accumulation for a shakeout move higher, for the move to be effective it will have to be very strong, in fact when it's done, if done properly, you'll probably be afraid to short anything and that's exactly what we want to see. The white area is the range we predicted before it started, yellow is Friday's head fake move and today we are seeing a break above the range which is the first step in confirming our expectations.

XLE/Energy's 1 min chart is in perfect confirmation of the move higher after weeks of poor 3C readings.

XLE was a late bloomer in the range, it didn't really show a large positive divergence until after the head fake move from Friday as prices dropped below support levels.

The 10 min chart is leading positive which is a good confirmation signal.

This is where the longer term and shorter term expectations come together; this 2 hour chart is a very serious timeframe with very high probabilities, as of now it's leading negative so our expectations are for Energy to see some strong downside and that's why we want to use strength to short in to. There is a possibility that this chart improves and the outlook changes or that we do see a downside move and then a more positive outlook, but we don't have evidence of that yet so we stick with what we see.

Now we see the longer term is very negative, we know we want to use the short term strength to short in to, if we zoom in on the exact same 2 hour chart, we can see recent improvement suggesting a move to the upside in the near term as this chart is leading positive when zoomed in, the chart above is where the 2 hour chart naturally falls so the leading negative divergence is the main signal, but this is also telling us in the short term strength is very likely followed by a move to the downside which is pretty much exactly what we have seen in nearly every industry group and market average.