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Trends & Analysis
News

Gold prices rise after 3 weeks of decline

News

Kroger shares fall despite Q1 sales beat

News

Brent crude falls below $80 on US-Iran peace deal

News

JPY gains versus USD on strong trade data

News

US dollar gains ahead of central bank meetings

News

Gold surges after US-Iran peace deal

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Asset Watch

Should we expect a rebound in crude?

Thursday, July 14, 2022

With crude oil futures plunging by roughly 8% on Jul. 12, fears of an economic slowdown have amplified volatility across the commodities complex. Plus, with the U.S. 10-2 Treasury yield spread inverting recently – which often predicts recessions – anxiety has run rampant on Wall Street.

 

While crude’s volatility may be too much to stomach, there is an opportunity that offers a higher risk-reward proposition. For example, the Energy Select Sector SPDR (XLE) ETF is the largest energy ETF in the world. And while the ETF often moves in unison with crude oil futures (the black line), the fund (the candlesticks) closed above its 200-day moving average on Jul. 12.
Energy Select Sector SPDR Fund Stock Chart Trading View

The last four times the XLE ETF reached or fell slightly below its 200-day MA, short and long-term rallies followed. Therefore, the downside is minimal if the XLE ETF can hold the line. If crude recoups some of its losses, the XLE ETF should follow suit.

 

In contrast, a material drop below the 200-day MA ($68.19) could provide us with a profitable shorting opportunity. If the XLE ETF breaks down, support becomes resistance, and the shorting window is open until the XLE ETF proves otherwise. This means the right trade depends on whether the XLE ETF stays above this key level.

 

So, with the XLE ETF now in fight or flight mode, should we trade around the 200-day MA?


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