After a huge two-year rally, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) reversed sharply in June last year.
From there, XOP dropped a massive 37% in just five weeks…
Then buying momentum returned, and XOP built a base in July and started to rally. But that pattern broke down this year.
Since then, XOP has steadily drifted lower due to slowing global demand for oil. But XOP recently tested and held a key level.
So today, I want to see if it can break out of its downtrend…
The Pattern Breaks Down
The left-hand side of the chart below shows XOP’s clear bullish pattern in the second half of 2022…
XOP made a series of higher highs (‘A’ and ‘B’) and higher lows (‘C’ and ‘D’) before that pattern broke down in January this year.
For that rally to remain intact, XOP needed to make a higher high than ‘B’ after rallying off the higher low at ‘D’…
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
Source: eSignal
Although the move from ‘D’ looked promising, XOP was unable to maintain it…
The 10-day Moving Average MA (red line) fell back below the 50-day MA (blue line).
And the Relative Strength Index (RSI) also broke back below support (green line). It got stuck predominantly in the lower half of its range.
So XOP continued to drift lower.
When we checked out XOP on March 23 (red arrow), the RSI had made a ‘V’ (right red circle) and rallied from oversold territory. It was similar to its move back in September 2022 (left red circle).
However, this new move petered out.
The 10-day MA had initially crossed above the 50-day MA. But now it rolled over and fell.
Likewise, the RSI had broken above resistance. But it also reversed and began bearishly tracking in the lower half of its range.
More recently, though, a different pattern has seen the RSI rally from oversold territory…
Instead of a ‘V,’ the RSI steadily climbed (right red line), making a string of higher lows. This resembled the climb in December 2022 (left red line) that enabled XOP to lock in the higher low at ‘D.’
Take another look:
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
Source: eSignal
That upswing in momentum has allowed XOP to rally these past couple of months.
Adding to the bullish sentiment, the RSI is now back in its upper range. And the 10-day MA has recently broken back above the 50-day MA.
This emerging move is looking promising. Yet it’s still early days.
So what am I looking for around here?
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Rally Taking Hold
Inside the orange circle on the chart, you can see where the RSI recently tested and held support. And what happens around here will be key…
If the RSI tracks higher and becomes more firmly established in its upper band, then momentum will help drive XOP higher.
The next test for XOP would be to take out its high from April 12.
The other thing I’ll watch is our two MAs. As I mentioned, the 10-day MA recently broke above the 50-day MA.
For any rally in XOP to take hold, the 10-day MA needs to accelerate higher (than the 50-day MA) with both MAs tracking higher.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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