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Trends & Analysis
News

Week Ahead Preview: 10th of February

News

Amazon’s shares slide despite Q4 beat

News

PepsiCo’s shares climb despite Q4 sales miss

News

GBP/JPY price may drop to a Multi-month low

News

Alphabet’s shares plunge despite Q4 earnings beat

News

Gold Price Outlook – Will Gold hit a new all-time high?

Trends & Analysis
News

Week Ahead Preview: 10th of February

News

Amazon’s shares slide despite Q4 beat

News

PepsiCo’s shares climb despite Q4 sales miss

News

GBP/JPY price may drop to a Multi-month low

News

Alphabet’s shares plunge despite Q4 earnings beat

News

Gold Price Outlook – Will Gold hit a new all-time high?

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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