On March 16,2015 I created a post where we looked at the potential support zone in the Energy sector etf (XLE) using prior supply-demand patterns. Click here to view post. At that point XLE was trading around $75, over the next couple months the Energy sector continued to rally and got as high as $83.66, some 11.50% higher.
However it appears now that prices have hit a stall out point, with more potential resistance above. In the chart above we see that the prior retrace rally took prices up $12 points in late 2014. Fast forward ahead and we see that the May 2015 high of $83.66 matched the $12 length of the prior retrace rally, spelling resistance in the short term at least.
Just above the May 2015 highs there is the breakaway gap from late November 2014 at $85.30, where price just opened well below the prior close and never looked back, the potential is there that this becomes resistance on the first attempt. Next we have $86.61, which marks the midpoint of this bear market, as another potential resistance point.
So in the short term this means that prices may struggle for awhile and may even drop back down near the bear market lows, even making a new low near the lower rung of the two support zones, which comes in between $68 and $69.50.
For traders it makes sense to take profits and trade sparingly between the upper and lower limits of these key price levels. For investors, purchases in the support zones set up a probability for growth over the lower term.
(Disclosure: Long XLE)