XLE-WTI correlation; cue to XLE Cup and Handle 2-year breakoutXLE and WTI demonstrate high level of correlation i.e. move in same direction. XLE provides stock-ETF alternative for traders who do not trade WTI. Interesting to note that WTI has outperformed XLE since Q4 2017 while the latter was capped at a 2-year high printed in December 2016.
Bullish view of WTI and XLE
in previous piece I was looking for swing long WTI as a continuation trade. I see it sitting at potential support. At same time XLE is capped at 2-year high resembling a cup and handle pattern. If WTI long continuation is correct, XLE may do a breakout above this resistance. In fact there is room for XLE to catch up since it is underperforming WTI in the near term.
Bearish alternative
There is a bearish view. When correlation is found question is always which is correct A or B? What if WTI is bearish? Then XLE resistance is justified and the current underperformance would be easily justified as a divergence.
I stick to the bullish view.
