Energy Bouncing Back

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Back on July 3rd we discussed how there were bullish developments beginning to emerge in the energy sector. Even though XLE managed to print a lower low there continue to be bullish developments that signal the low is nigh.

xle

XLE breached the declining 50 day MA on day 8. However XLE proceeded to break lower to undercut the day 33 low only to form a bullish reversal on Friday. XLE has since formed a swing low and delivered bullish follow through which signals that Friday hosted either a shortened 11 day, DCL or a stretched 44 day DCL. The bullish divergences on the oscillators align with a DCL printing on Friday. At this point we need to see a clear and convincing break above the declining 50 day MA to confirm that the undercut low hosted the daily cycle low.

Natgas also formed an undercut low last week.

natgas

NATGAS broke below the previous DCL last Wednesday. In real time this looked as if Natgas formed a failed daily cycle. But Tuesday’s rally makes it look like last Wednesday hosted an undercut low and extended the daily cycle out to day 54. A clear and convincing close above the declining trend line will confirm that Natgas is in a new daily cycle.

While oil did not form an undercut low, it did look like it was in trouble last week.

oil

Oil was soundly rejected by the declining 50 day MA last Wednesday. Coupled that with oil closing below both the 10 day MA and the lower daily cycle band on Friday made it look as if oil was forming left translated daily cycle. However, oil printed a reversal on Monday and then delivered bullish follow through forming a swing low on Tuesday. That allows us to construct a daily cycle trend line. As long as oil remains above the daily cycle trend line then it will continue to develop bullishly.

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Timing Band

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Stocks printed a higher high on Tuesday.

spx daily

Tuesday was day 27 for the daily equity cycle. Stocks are now 3 days shy of their timing band to seek out a daily cycle low. Therefore we need to be alert to a swing high that is accompanied with a trend line break, because that will likely lead to a decline into a daily cycle low. A peak on day 27, or thereafter, assures us of a right translated daily cycle formation. Therefore our cyclical expectation is to see this daily cycle print a higher low.

Stocks have been in a daily uptrend that has been characterized by closing above the upper daily cycle band. As long as stocks remain above the lower daily cycle band as they decline into the daily cycle low then they will remain in a daily uptrend.

XLE is also in its timing band to seek out a daily cycle low.

xle fx

XLE peaked on Friday, which was day 25, as XLE tested the 200 day MA. A swing high formed on Monday. Now a break of the daily cycle trend line will confirm that XLE has begun its daily decline. Since XLE is getting late in its daily cycle cycle I do not expect a lengthy decline. A peak on day 25 has locked in a right translated daily cycle formation, therefore we expect to see XLE print a higher daily cycle low. XLE is in a new daily uptrend. It should remain in a daily uptrend until it closes below the lower daily cycle band.

Energy

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Oil and the energy ETF XLE both formed swing lows today.

oil

xle

Both oil and energy printed their lowest point on Thursday after an extended decline. Thursday was day 24 for oil and day 19 for XLE. This places oil one day shy of its timing band for a daily cycle low, while it places XLE in its timing band for a daily cycle low.

Both formed a swing low today to signal a new daily cycle. Now a break of the daily cycle trend lines will confirm a new daily cycle for both.

NATGAS also formed a swing low on Thursday.

natgas

NATGAS printed its lowest point on Tuesday, following its day 13 peak. Tuesday was day 19, which places NATGAS in its timing band to print a daily cycle low. The swing low today broke above the declining trend line to confirm a new daily cycle. This just-completed daily cycle printed a higher high and a higher low over the previous daily cycle, thus breaking the pattern of lower highs and lower lows. The status NATGAS’ weekly and yearly cycle is turning bullish and will be covered in the Weekend Report.