Energy Stocks Could Be Facing Long Term Resistance


Energy stocks have led the market this year as investors looked for travel to resume after last year’s lockdowns. But now the sector could be sitting at long-term resistance as potential negatives mount.

The chart below shows the SPDR Energy ETF (XLE) with weekly candles. Notice how it’s been stuck around the same $53-55 area where it bottomed shortly before the coronavirus selloff. This could be an instance of old support becoming new resistance, a potentially bearish chart pattern.

The fundamental backdrop may be turning less positive because crude oil inventories have been higher than expected in four of the last five weeks. That’s a sign that the market’s longer-term oversupply is continuing. Another headwind could come from Iran after press reports that President Biden may renew the 2015 nuclear deal with Tehran. That agreement, canceled by former President Trump in 2017, would allow more Iranian oil into the global market.

Energy stocks have benefited from the economy reopening and investors’ shift toward value stocks. However they have been in a longer-term downtrend for the last decade. Traders may want to keep an eye on the sector, either for taking profits or using options to position for moves lower.

SPDR Energy ETF (XLE), weekly chart, showing potential resistance line.
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