SPDR Energy ETF: Long-Term Breakdown in Market's Weakest Sector?

AMEX:XLE   SPDR Select Sector Fund - Energy Select Sector
We've earlier cited downside in S&P Oil & Gas Exploration Fund and Halliburton . Now we're taking a step back to look at the bigger picture on the SPDR Energy ETF . It isn't pretty for the bulls.

As many traders know, XLE is the market's worst-performing major sector by a wide margin. A global crude-oil glut and mediocre economic growth are hurting crude prices. Throw on top of that heavy debt loads at many companies and weak quarterly results ( Exxon Mobil and Chevron today). You also have coronavirus reducing air travel.

Finally, the trend toward ESG investing is already giving money managers less reason to hold traditional fossil-fuel companies.

This backdrop has been taking shape on XLE's long-term chart. The fund had a violent drop in 2014 and 2015, followed by 3-4 years of consolidation. The S&P 500 broke out to new major highs twice during that period (late 2016 and late 2019), but neither time did XLE follow. That's a classic sign of weak price action.

While XLE's weekly chart was neutral between 2015 and 2018, it's turned more bearish since last April by forming a series of lower highs. That's now become a descending triangle , with the potential for the earlier downward move to continue.

That could result in accelerating downside with volatility rising. Options traders may want to consider favoring longer-term vega trades. Situations like this can favor buying longer-dated out-of-the money puts.

XLE's chart at this point may have some support at the 2016 low of $50. However, when you consider the long-term nature of the breakdown apparently happening, a retest of the 2009 lows under $40 isn't out of the question.