XOP Energy Exploration + Production Outperformance to Continue
XOP is the ETF for the energy sector's oil and gas exploration and production sector. Despite the market indices (US) experiencing a high degree of volatility and technical damage, the energy sector has outperformed all other sectors in in 2022 (and late last year).
A cup with handle has formed, which is a bullish consolidation pattern made famous by legendary investor William O'Neil. Investors attempt to identify such patterns as signals that a higher move may be possible so long as a breakout past the pivot (the high of the handle on the cup) occurs and does not fail subsequently.
Other experts call it a volatility contraction pattern (VCP)—because when volatility contracts, it tends to then be followed by an increase in volatility, usually in the direction of the trend. The only caveat is that markets can sometimes derail breakouts from VCPs (cups with handles or other consolidation patterns).
Note how the trend in XOP is quite well defined going back to July 2021. XOP has respected the uptrend line across the lows (see the parallel channel above) And the price has been making higher highs and lower lows consistently since then. And momentum in the short-term is increasing, though I suspect all stocks may be dragged down to some extent by some of the market's downdrafts similar to what occurred in January 2022.
Recently, I started a small position using a vertical option spread to trade this to the upside into mid-March. I am keeping the position small until a better entry appears. I would add to the position at the 21-day EMA if it holds as support on any pullbacks.
In short, XOP appears to be a strong part of the leading sector in the US right now. While the markets may continue to experience volatile declines, it's worth watching XOP hold its trendline and MAs steady. It may be worth taking a bullish perspective on any pullbacks to the mean (the 21-day EMA, the 34-day EMA, et cetera).
Lastly, XOP's relative strength vs the S&P 500 and the Nasdaq is quite impressive. (An easy way to view relative strength is to do a ratio chart, called a "spread chart" by TradingView, by typing in the symbol XOP/SPX or XOP/NDX.)
DISCLAIMER: This content is for informational and educational purposes only. This should not be construed as financial advice or an investment recommendation. This content is not a substitute for advice from a licensed financial advisor or investment professional. Please do not trade options, stocks or other securities without understanding risk, position sizing, and the nature of the security product being traded. And please do your own research.
A cup with handle has formed, which is a bullish consolidation pattern made famous by legendary investor William O'Neil. Investors attempt to identify such patterns as signals that a higher move may be possible so long as a breakout past the pivot (the high of the handle on the cup) occurs and does not fail subsequently.
Other experts call it a volatility contraction pattern (VCP)—because when volatility contracts, it tends to then be followed by an increase in volatility, usually in the direction of the trend. The only caveat is that markets can sometimes derail breakouts from VCPs (cups with handles or other consolidation patterns).
Note how the trend in XOP is quite well defined going back to July 2021. XOP has respected the uptrend line across the lows (see the parallel channel above) And the price has been making higher highs and lower lows consistently since then. And momentum in the short-term is increasing, though I suspect all stocks may be dragged down to some extent by some of the market's downdrafts similar to what occurred in January 2022.
Recently, I started a small position using a vertical option spread to trade this to the upside into mid-March. I am keeping the position small until a better entry appears. I would add to the position at the 21-day EMA if it holds as support on any pullbacks.
In short, XOP appears to be a strong part of the leading sector in the US right now. While the markets may continue to experience volatile declines, it's worth watching XOP hold its trendline and MAs steady. It may be worth taking a bullish perspective on any pullbacks to the mean (the 21-day EMA, the 34-day EMA, et cetera).
Lastly, XOP's relative strength vs the S&P 500 and the Nasdaq is quite impressive. (An easy way to view relative strength is to do a ratio chart, called a "spread chart" by TradingView, by typing in the symbol XOP/SPX or XOP/NDX.)
DISCLAIMER: This content is for informational and educational purposes only. This should not be construed as financial advice or an investment recommendation. This content is not a substitute for advice from a licensed financial advisor or investment professional. Please do not trade options, stocks or other securities without understanding risk, position sizing, and the nature of the security product being traded. And please do your own research.
Trade closed: stop reached:
The breakout past the pivot appears to be failing. Stop was reached, and trade will be closed. But waiting for XOP to reset the pivot point and approach it again without undercutting its key MAs or the trendline. In the meantime, it makes sense to look for other trades, but keep an eye on this hot sector / subsector for more upside. Perhaps its worth picking up at the lower trendline channel line should that be tested and hold
Comment:
It's truly impressive how well energy is holding up given the broader selloffs in the major indices and sectors. Energy may well pullback, but I suspect XOP and XLE will do quite well this year. The Ukraine-Russia conflict is no doubt having an effect here.
SquishTrade