The Energy sector (XLE) has been enjoying a rally throughout the summer. Today. it logged a new all-time high on a small breakout. While the sector looks impervious, there are a few concerns that we should point out.
The first issue would be the overbought RSI. While a stock’s price can remain overbought, typically, when the RSI reaches this level, you will see at least a pause. The other issue is the “Bearish Shift” of the Silver Cross Index (SCI) as it crossed below its signal line. The rest of the indicators, including our primary Price Momentum Oscillator (PMO), are bullish. You’ll notice that participation (%Stocks > 20/50/200EMAs) remains well above our bullish 50% threshold and really isn’t bleeding off much. Stochastics are comfortably above 80, suggesting internal strength.
Conclusion: The Energy sector looks very strong, but we are noticing a few problems under the surface. We should remember that overbought conditions can persist in a bull market, which XLE clearly is in. If the Silver Cross Index continues to lose ground, we would tighten stops on your Energy positions.
Would you like to be notified when major indexes, sectors and select industry groups see “Bullish/Bearish Shifts” and given the bias in the intermediate and long terms? You’ll find these in every DP Alert report!
Good Luck & Good Trading,
Erin Swenlin
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