A Technical Analysis On Energy

Waiting for “seemingly minor events,” such as a 2 percent share price decline, is extremely important, Brean Capital’s Frank Longman said in a report. He commented that “the magic happens when we find the correct intersection of solid bottom up fundamental work and systematic top down quant-technical.”

Longman explained that if one has a $100 stock that's considered worth $120 and one feels it can't trade below $90, assuming the trader hits the trades at 55 percent, “the difference between a $98 cost basis and a $100 cost basis is meaningful.”

Take On Energy

The next swing low in the Energy Select Sector SPDR (ETF) XLE could come either at S1 $74.15 or a possible “blue zone,” in case the broad market corrects in earnest. S1 is 204 bps [basis points] below Wednesday's close at $74.15. The upside objective would be a “red zone” in the $81.7-$89.4 range, with the bottom of the red zone 10.18 percent above S1.

“We'll call the pattern failed if we see XLE close below 69.5 which is 627 bps below S1. Skew is fairly marginal, at roughly 10 vs. 6 but probability of success seems high enough to use that S1 level to add some exposure,” Longman wrote.

Although the rally in energy stocks from their Q1 lows was impressive, the index still looks “like reversion against a larger downtrend,” the analyst added.

Bullish Dip Buy

Longman mentioned the following intermediate-term bullish dip buy setups:

• ConocoPhillips COP
• Noble Energy, Inc. NBL
• Newfield Exploration Co. NFX
• Suncor Energy Inc. (USA) SU
• Golar LNG Limited (USA) GLNG
• SemGroup Corp SEMG
• Southwestern Energy Company SWN