Friday’s ETF Chart To Watch: State Street Energy Select Sector SPDR (XLE)

by on October 28, 2011 | ETFs Mentioned:

Thursday was a bright green day on Wall Street as investors piled into equity market after European leaders took another step forward in the right direction. Policymakers in Brussels agreed upon a $1.4 trillion “bailout” while private bondholders negotiated to accept a 50% writedown on Greek debt. Although several key issues remain unanswered, investors are quite optimistic that EU leaders will prevail in bringing forth a comprehensive plan to restore stability. Amidst the cheer, gold worked its way higher throughout the day, bolstered by inflation fears from overseas. Futures prices for the yellow metal hit a fresh multi-week high of $1,751 an ounce as the trading day drew to a close.

Energy giant, Chevron, is expected to report third quarter earnings results later today, and analysts are expecting for the company to generate a profit of $3.44 per share [try our Free ETF Stock Exposure Tool]. Chevron is the second biggest holding in the Energy Select Sector SPDR (XLE), which makes this our ETF to watch for the day [see XLE Holdings].

Chart Analysis

Consider the chart below and notice how XLE attempted, and failed, to break above the $80 level back in April, May, and towards the end of July in 2011 [see ETF & Sector Rotation: Large Cap, Small Cap, Or International]. Since breaking below its 200-day moving average (yellow line) in early August, XLE lost quite a bit of ground, although it appears to have bottomed out at $54.26 a share on 10/4/2011. Since its most recent low, this ETF has bounced back a considerable 28%, quite impressive for less than a month’s worth of work [see Thee Forgotten ETFs To Play Oil].

Click to Enlarge

XLE closed right on its 200-day moving average around $72 a share yesterday, which is noteworthy because this ETF had significant resistance at the $70 level [see XLE Technicals]. Price action in shares of XLE is quite bullish given that this ETF managed to hold its gap on relatively high-volume trading, perhaps suggesting that investors are anticipating even more upside over the coming days [see our Futures Free Commodity ETFdb Portfolio].


Bullish sentiment appears to be sweeping over Wall Street as investors are becoming less and less fearful of the possibility of a financial crisis in the Euro zone [see Energy ETFs: Six Very Different Ways To Play]. Now that XLE has broken above its previous resistance at the $70 mark, the level of resistance and potential profit taking comes in at $75 a share. If Chevron reports better-than-expected earnings and manages to lift the energy sector, XLE could very easily hit $75 a share tomorrow. Likewise, this ETF may just as easily fall back down to the $70 level if investors decide to pull the trigger and take profits, given the funds stellar run-up over the past month.

In terms of downside, the first level of minor support for XLE comes in at $70 a share, although major support lies around the $65 mark. Conservative investors looking to get long ought to consider waiting until this ETF establishes support above its 200-day moving average for two or more consecutive days, depending on individual risk tolerance [see Ten Common Mistakes Every ETF Investors Should Avoid]. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.