Another Big Test

I noted last evening that this week would be crucial for the bull case. In the understatement of the year, the bulls are off to a weak start. That said, looking at the weekly chart of the XLE (ETF for energy stocks), indicates that an important test is upon us. The $62/$63 level has served as either clear support or resistance over the past several years.

I recognize that the market has recently sliced through what should have been key reference points as though they were not present. While many would say that technical analysis is not working here, I would argue that it is, insofar as the market is telling us that selling pressure is so overwhelming that buyers are too weak to defend prior areas of support. Thus, it follows that if the swoon continues through this $62/$63 area in energy, then we know just how bad things really are. The fact that this area is so well-defined makes it all the better of a litmus test.

Again, these are reference points only, where they serve as an excellent gauge of underlying strength, or lack thereof. These are not places to automatically stick in your bid and buy.

_____________________