When the oil price rallied strongly in the first half of 2022, it wasn’t just the big oil companies that enjoyed the boom.
The oil and gas exploration sector also enjoyed some impressive gains.
From its January low to its peak in early June, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rallied a massive 77%.
However, XOP reversed sharply after hitting that peak.
As XOP’s down move then gathered momentum, it took just a month for it to lose around 36% of its value.
But since bottoming out from that fall, XOP has been trying to establish a base.
Today, I’m going to see how that’s panning out and what we can expect from here.
Check out XOP’s chart…
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
Source: eSignal
The 50-day moving average (MA – blue line) shows XOP’s long-term uptrend that began in early January.
That uptrend was confirmed when the 10-day MA (red line) crossed above the 50-day MA.
But when we last looked at XOP on May 11 (red arrow), that uptrend was losing momentum.
Divergence (orange lines) between XOP’s stock price and the Relative Strength Index (RSI) was warning of a potential change in direction.
Back then, the MAs were also moving closer together. And the 10-day MA was bearishly on the verge of crossing down over the 50-day MA.
However, with the RSI breaking back above resistance (green line) and into the upper half of its range, renewed buying momentum pushed XOP up to its June 8 peak at ‘A.’
This peak coincided with the RSI going into overbought territory (upper grey dashed line).
Then, with the RSI forming an inverse ‘V’ and dropping sharply, XOP’s stock price also fell heavily before bottoming out in the first half of July.
In addition to the RSI reversal, this down move was characterized by two other technical signals:
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After breaking down through support, the RSI remained in the lower half of its range.
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The 10-day MA crossed down below the 50-day MA.
Since bottoming out, the RSI rallied off of oversold territory (lower grey dashed line). This enabled XOP to establish a short-term base (red horizontal line). And, it set up XOP for a potential rally.
So, what can we expect from here?
Let’s take another look at the chart…
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
Source: eSignal
The recent up move has XOP trading back around $128.
However, this bounce also has the RSI pushing right up against resistance (red circle).
For XOP to continue to rally from here, the RSI must break up through resistance and stay there.
Any prolonged up move beyond that, will be reliant on the 10-day MA crossing back up above the 50-day MA.
We must remember that this market is particularly fickle right now… with many commodities recently copping an absolute beating.
If the RSI instead reverses strongly down from resistance, then any bounce will be short-lived.
Such a move could see XOP retest its June low at $108 in a heartbeat.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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