One of the standout performers so far in 2024 has been oil.
The Energy Select Sector SPDR Fund (XLE) is an ETF that invests in a wide range of oil and gas stocks. And its recent high represents a 25% gain since its January low.
That’s almost double the Nasdaq’s 14% rise from January up to its March 21 high.
But after this surge, XLE’s rally is starting to come under pressure. It is potentially looking overbought.
So let’s check in on XLE today to see how things might play out from here…
Topped Out
The 50-day Moving Average (MA, blue line) highlights XLE’s meandering sideways pattern in 2023.
Although you can’t see it here, XLE finished 2023 trading right where it was 12 months earlier.
Energy Select Sector SPDR Fund (XLE)
Source: eSignal
Yet there were still significant moves in XLE’s sideways trend.
For example, it rallied from June to September, resulting in a gain of around 23%.
This move corresponded with the Relative Strength Indicator (RSI) bullishly tracking in its upper band (above the green line). Likewise, the 10-day MA (red line) accelerated above the 50-day MA and pulled it higher.
However, despite that promising rally, XLE topped out and reversed.
From September into early 2024, XLE steadily fell. Those bullish patterns in the RSI and MAs reversed.
XLE’s trough in January coincided with the RSI forming a double ‘V’ and rallying from near oversold territory (lower grey dashed line).
As the chart shows, the RSI broke through resistance and then retested (and held) that level multiple times. And XLE tracked sideways from late January through mid-February.
Momentum steadily built in its upper band, allowing XLE’s rally to develop further.
Take another look:
Energy Select Sector SPDR Fund (XLE)
Source: eSignal
This positive action also saw the 10-day MA cross and accelerate above the 50-day MA. Both MAs moved sharply higher.
It also coincided with the blue MACD line crossing above the orange Signal line. After breaking above the zero line (0.00), both MACD lines have continued to track higher.
After such a strong rally, though, the chart is warning us that XLE could be overbought.
The RSI recently inverted from well above the overbought line (red circle). And although it’s still early days, the MACD lines have recently started converging.
So what should we look for next?
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Lower Highs
The RSI’s inversion has coincided with XLE making lower highs these last few days.
So the RSI will play a big part in determining where XLE is heading next.
If the RSI falls nearer to support, XLE’s longer-term uptrend could transition into a clear pullback. Such a move could soon see XLE trading around $94–$95.
Yet I’m also watching the MACD closely right now. As I mentioned, the two MACD lines have recently been converging.
The MACD line crossing below the Signal line (with both falling) would add extra confirmation of any emerging down move.
Larry Benedict
Editor, Trading With Larry Benedict