Oil prices and energy stocks experienced a powerful bull market in the first half of 2022, while equities, bonds and other assets were all under pressure.
More significantly, energy prices were rising despite a strong US dollar. There was clearly a supply/demand imbalance and the geopolitical turmoil between Russia and Ukraine obviously didn’t help matters.
However, the third quarter is not the same story.
Oil prices are down more than 37% from their second quarter high and are down 27% so far this quarter.
The Energy Select Sector SPDR ETF (XLE) the pain is not gone either, although the losses are not as bad as crude oil. The XLE ETF is down 25.5% from its second quarter high and is down nearly 3% this quarter.
How do they look going into the fourth quarter?
Oil Trading Prices in Q4
The daily chart above shows a few key developments for crude oil. Early in the quarter, it did a good job of holding the $95 area and the 200-day moving average, but $100 was acting as resistance.
As soon as the support passed, the 21-day moving average turned into resistance. That’s the trend we’re seeing now, as oil prices are now below their 2021 high and trading at their lowest level since January.
I want to see how the $77 level holds up, which is the 78.6%. If oil bounces, watch how it handles the declining 10-day and 21-day moving averages as these have been active resistance (especially the moving averages).
Back above these measures adds $90 and the 50 days apply.
On the downside, $65-ish seems a long way off – and it is, as it would suggest a 15% decline from current levels – but that area should be solid support if we see it in the months ahead.
Energy Stocks Trading for the Fourth Quarter
As for the XLE ETF, investors may also want to keep an eye on Exxon Mobil (XOM) and Chevron (CVX) which have a weighting of 22.6% and 20.7% in the portfolio, respectively.
The 50-week moving average has been solid trend support for the XLE ETF for more than a year. However, this measure is now refusing the ETF.
If the XLE bounced, I would first want to see it reclaim the 50 week moving average. If it can do that, I’d like to see if it can put pressure on the declining 10-week moving average.
If the XLE continues lower, I’m looking for a retest of the $66 level, which is close to the July low. We also have the 38% from the all time high down to the covid low in 2020, as well as the 200 month moving average.
Under that area the belt applies $58 to $59. That was a separate main area early in the year, as well as the 50% range already mentioned.