A recent rise in crude oil prices has generated a positive short-term momentum shift in energy stocks. Analysts anticipate that this rally will continue in the immediate future, noting that West Texas Intermediate (WTI) crude oil futures have surpassed their 50-day moving average. Additionally, energy sector benchmarks exhibit positive technical indicators, such as Moving Average Convergence Divergence (MACD) “buy” signals. The Energy Select Sector SPDR Fund (XLE) has broken through short-term resistance from the daily cloud model, reversing a five-month downtrend and successfully testing long-term support from the rising weekly cloud model. This setup suggests potential short-term gains for XLE and its major components, including Exxon Mobil (XOM), which constitutes approximately 23% of the fund’s weighting.
The recent breakout of XOM could benefit the sector in the long term, contingent on WTI crude oil sustaining levels above long-term support in the low $60s per barrel. XLE faces final resistance around $99, while XOM has surpassed long-term resistance near $120. A major breakout will likely be confirmed if XOM closes above this level for a second consecutive week, expected on Friday. Such breakouts typically generate additional momentum, which would be favorable for investors, as XOM has been range-bound for nearly two years. The potential for a ‘buy’ signal from the monthly MACD this month could further support this movement since it previously reversed in mid-2023.
The breakout positions XOM with a technical price objective of $136, based on a measured move projection, while support is identified by the 200-day moving average near $112. This level acted as the rally’s foundation. If the breakout is confirmed, support could be adjusted to $120 to enhance the long-term risk/reward profile. The primary risk associated with trading energy stocks currently lies in geopolitical tensions, which could impact the price of crude oil. Consequently, risk management through stop-loss strategies or hedging is advised.
The analysis was prepared by Katie Stockton with Will Tamplin from Fairlead Strategies. The views expressed are those of the authors and do not necessarily represent the opinions of CNBC, NBC Universal, or their affiliates. The material is intended for informational purposes and does not constitute financial, investment, tax, or legal advice. Readers are encouraged to consult financial advisors before making any investment decisions.
