Charted above is the performance of XLE on both a relative and absolute basis. Looking a both offers some additional perspective on the health of the sector vs. focusing solely on the underlying price of the index.
On a relative basis, this sector broke down from a long term trend before it became fully apparent in the price. XLE had well defined support going back to 2006. It was the break of this support that really got the price moving lower. It looks like for now the sector has found support on a relative basis at a level that goes back to 2005/2006.
Looking forward, if the broader market continues to move higher its possible the sector will stabilize around these price levels while continuing to move lower on a relative basis. However, any market weakness and XLE could underperform even more significantly. The next area of interest for the sector is marked by the shaded box above. The sector traded in this range for nearly 4 years from 2000 to 2004. This area is also the projected price target for breakdown in the descending wedge marked above.
Individual plays and short term bounces may present themselves but from a mid to long term perspective, I don't see an attractive risk-reward for this sector at this time. Something worth keeping a watch on for sure though.
On a relative basis, this sector broke down from a long term trend before it became fully apparent in the price. XLE had well defined support going back to 2006. It was the break of this support that really got the price moving lower. It looks like for now the sector has found support on a relative basis at a level that goes back to 2005/2006.
Looking forward, if the broader market continues to move higher its possible the sector will stabilize around these price levels while continuing to move lower on a relative basis. However, any market weakness and XLE could underperform even more significantly. The next area of interest for the sector is marked by the shaded box above. The sector traded in this range for nearly 4 years from 2000 to 2004. This area is also the projected price target for breakdown in the descending wedge marked above.
Individual plays and short term bounces may present themselves but from a mid to long term perspective, I don't see an attractive risk-reward for this sector at this time. Something worth keeping a watch on for sure though.