Despite the intense selling to close out last week, energy stocks are still holding a key multi-year area that I discussed two weeks ago in this blog post. The reason why I view energy stocks as such an important proxy for risk appetite here is that the bulls need them to stabilize. If you recall the bear market in 2008, the amount of highly levered hedge funds piled into (and rushing out of) high beta commodity stocks exacerbated the fierce, indiscriminate selling as the air came out of the tires in a deflationary environment. To that end, watching the key $62/$63 level on the XLE (ETF for energy stocks) is still important for the intermediate-term direction of the market.
On a related note, best of breed oil service firm Schlumberger is sporting a weekly chart that provides another crucial reference point. Understand that the fierce global liquidations over the past several weeks render short-term areas of support essentially useless, which is all the more reason to hone in on these major long-term levels. In essence, energy stocks are pushing these levels to the max. As you can see below, the “Slob” had better stabilize at $72 in order for the bulls to hold onto their recovery scenario.