The hardest hit during the past week was the energy sector, which amid rising signs of wavering fuel demand, began seeing the price of oil and fuel adjusted lower to better reflect current fundamentals which are showing signs of weakening.
Crude oil remains under pressure due to weaker fundamentals as the recovery in global energy demand continues to show signs of stalling. Many countries around the world, especially in Europe and Asia, are now in the midst of a second virus wave. As a result, fuel demand stifled plus the Brent Oil & Crude Oil started a downtrend cycle after 3 months of slowly grinding upward in a tight range. Among other stuff, the drop in demand for oil led to a really massive looking XLE (Energy Select Sector SPDR Fund) sell signal, that was fired just in time at the opening auction of this week and what has triggered a truly substantial bearish outlook. Let met explain ...
Within above weekly technical chart of the XLE fund that tracks a market-cap-weighted index of US energy companies in the S&P 500 we recognize that the since May supporting dark-green dotted 34.40$ horizontal is FINALLY broken at this week 32.62$ close. The 34.40$ horizontal was finally breached at the opening auction of this week`s candlestick, which represents a massive bearish gap from last week`s closing price.
==> XLE fired a bearish breakaway gap on week base that broke 34.40$ support horizontal what acted as a major support on weekly, but also on yearly base.
==> Followed by a very bearish close that finally breaks combined weekly and yearly support what doesn`t bode well for the future as ADDITIONALLY a potential monstrous weekly MACD sell signal is shortly before completion.
The weekly Slow Stokes and RSI that press down already, warn impressively that this powerful MACD sell signal is due for next week.
Time count is as follows: the 2020 rally leg what began at # 1 // 2020 March low FINALLY exhausted into a classic # 13-Fib number top, what therefore is an important countertrend high within secular bear market!!
At # 13-top the XLE started a new weekly and monthly downtrend what fires a next massive bear signal, as week # 25 printed lower lows as the # 21 Fib number week, as a consequence the downtrend might continue towards and into next Fib number in the sequence what is the 34.
In the daily candlestick chart the price is mostly caught within a double arc pattern. Red arc is main resistance. Dark-green arc was main support and will be future main support.
The double arc had an effect on the price since printed year`s lows. So this double arc and the 2 lines of the double arc are rails on a yearly base. It is stunning how often the resistance arc = yearly arc resistance, has been negative tested from below. In the end, the very last test of the resistance arc at past week Friday highs was the main reason for that at this # 25-week open the weekly bearish breakaway gap was fired ...
We are eager to sell-short an usually very short-lived run for the next test of the yearly resistance arc cause as the market for months has not been able to break the downward sloping resistance arc main downtrend magnet so far, this situation could last until early-October then when the resistance arc cuts the time axis (not highlighted above) and accordingly only then perhaps will officially lose its downward influence.
==> XLE should continue within its downtrend for the entire September, at least!, because of a relentless downward-dragging arc resistance magnet.
==> I recommend to sell short XLE at 33.10$ until this Friday, 18th of September.
There and until then the or a backtest of the resistance arc could be printed.
To round off todays very bearish forecast we try to derive a serious downward target with the help of the weekly up setup what is a classic 8 Fib number GUNNER24 Up, that reveals that the # 13-Fib number countertrend top has negative tested the upper line of 1st double arc = MAJOR RESISTANCE UPTARGET out of 2020 Low!
For trading XLE the coming weeks please use that scaling above as # 13-Fib number countertrend high is at upper line of 1st double arc (always a major countertrend resistance target) and at 2*1 Gann Angle a textbook "KISS of DEATH" event is seen & last but not least the Blue Arc is countless times tested to the dot week high and weekly closing base resistance.
This is why the Blue Arc is THE MAJOR resistance of 2020. A well and recently accurate confirmed yearly resistance! And this is why the market may decline or be in bear mode until this Blue Arc officially will loose its influence, what is due for mid-January 2021 (orange circle).
Crude Oil and also the Energy XLE EFT might drop further and further until January 2021 or so. This active time signal allows that the # 1 // 2020 Low has to be tested back seriously in further course of 2020 and yeah, even some lower secular bear market lows might be on the agenda until January 2021.
XLE might start an usually short-lived daily upswing into selected 33.10$-sell-short entry point as this week low is at natural 1*1 Gann Angle, what is important = usually very strong and above all natural weekly support! But in the end the 1*1 Gann Angle support should not hold in course of the next few days as the just fired bear signal likely is a sustainable, serious event and second this downtrend should at least test and reach the 1*2 Gann Angle in trend direction towards late-September to early-October 2020.
Then the 1*2 Gann Angle, important natural downtarget magnet, runs at about 28.40$. And thus we have identified and derived a very serious downside target!
==> I don`t think that we will see a bearish panic in the oil and related markets, but have to accept that the coronavirus crisis may lead to a more serious downtrend what could continue into 2021!
I would place the SL for this XLE-short attempt at 34.60$!
Be prepared!
Eduard Altmann