XLE Update

I'm not going to assume that I know what happens to the Energy sector if we are right on crude oil. Oil is just one part of the Energy sector which includes other fuels, services such as drilling, exploration, transport, storage, etc. It's a lot more than just oil prices, but in many cases it stands to reason that higher oil prices translate in to higher profits for many of the related sectors.

I know this is a report, but worthwhile...

 Energy is a large sector, yesterday it led by a long shot and the market was up as the major averages all have exposure to the energy sector (SPY green vs XLE/Energy in red).


On a larger overall chart, Energy red lagging the market badly (green).

It was some divergences in UNG that got me looking at energy after the negative initial reaction to the EIA Nat. Gas inventories...

 UNg intraday positive after the EIA inventories decline at 10:30 this morning and then leading positive.

 I looked at XLE and saw the same thing, a positiver divergence at the morning lows and leading positive which has now seen price catch up to in line status.

And the SPY...

The same divergence at the same place,  this is not coincidental,  and in line or leading positive since. USO has "similar" signals, not quite the same as it's missing the morning positive divergence.

XLE after the 1 min chart...

 XLE 2 min larger negative divegrence with this morning's positive "relative" divergence visible. The relative divergence is weaker than the leading divegrence and it makes sense here as the 1 min chart that was leading is a weaker timeframe than the 2 min chart which is relative, the point being, it's a positive divegrence intraday, but not particularly strong as the larger trend is a leading negative divegrence, this is a simple, small bounce within that, but one with enough market exposure to move the SPX.

 XLE 3 min chart from a relative negative to a stronger leading negative.

5 min XLE since the 4/2 forecast where it was leading positive on 4//2 and in to higher prices has seen 3C distribution like everything else to a current leading negative overall divegrence.

The 10 min XLE chart is probably most telling for the trend we can see on the chart above. The 3C trend goes from in line to the first divergence which is the weaker relative form and then a stronger leading negative form, suggesting XLE is losing upside momentum and approaching a pivot/downside reversal which would likely be needed if the broader market were to do the same given Energy's weight on various averages.

 So far the 15 min chart has not turned negative which I'd consider a prerequisite to a broader market pivot to the downside, although this is a different and longer trend as the 15 min charts for the major averages were only positive as of the days leading in to the April 2nd forecast, which is why they were specifically targetted as a condition for a downside pivot, that divergence represented the "gas in the tank" for the averages, before they run out and turn to the downside.

The longer term 30 min chart went negative right around the same time as USO/Oil last summer, but has been more in line with the downside move, unlike USO which has been building a broad base-like pattern with leading positive divergences, whereas this chart is in line with the downside move.

There are some longer term charts that look a bit better for a "possible" base, but not to the extent of USO/Oil.

I'll admit, I'm not sure just how much weight to give this and just where it should go negative, but I believe that the broad sectors which are the second most influential gravitational pull on any individual stock within those sectors, second only to the broader market, would require a clear downturn in Energy as well as so there's no supporting sectors, especially not one as large as energy so it will be on the watchlist as the 10 min chart , like the SPY's before it's 15 min turned negative, doesn't look good, meaning like the SPY, the 15 min could turn quickly.

Additionally, if there looks to be a high probability low risk trade set up in Energy, I'll post that as well. We seem to be moving in that direction.