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Oil, Energy And SPX: Get-In-Get-Out

Published 04/11/2016, 02:26 PM
Updated 07/09/2023, 06:31 AM

Energy Sector Set To Save Stocks

Over the past few weeks, we have seen the price of crude oil pullback from its recent high of $42 per barrel. Last week, crude oil pulled back to a technical support zone and then posted a strong gain closing the weekly chart at the high.

Based on short-term technical indicators, along with the oil's current momentum, I think we'll see a test of crude's recent highs tested once again.

So what exactly does this mean for energy stocks? Well, if things unfold this week as I expect they will, we should see oil, energy stocks and the S&P 500 all rise.

This weekly crude oil chart shows what I expect will happen over the next one to three weeks -- a bounce in price.

Crude Oil: Looking For A Price Bounce

XLE (NYSE:XLE) Energy Sector Index Fund

Energy stocks have had a strong rally since their lows earlier this year. But as you can see from the chart below and basic technical analysis, the price is now running into resistance at the moving average, which has acted as resistance for price. And price is currently struggling at that level once again. I wouldn't be surprised though to see XLE push higher one last time, testing the recent highs from last month before topping and starting another large correction.

Energy Stocks

U.S. Stocks

While the U.S. stock market has posted strong gains since the January low, I feel this rally is going to come to an abrupt stop this month, possibly in May.

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If oil and energy stocks continue to move higher, we should see the stock market follow suit. I also expect the S&P 500 to rally one last time up into a resistance zone before the next big wave of sellers step back into the market.

U.S. Stocks

Energy And Stocks

In short, I feel that U.S. large-cap stocks are setting up for an epic drop in price. My technical analysis and cycle analysis are lining much as they did during the 2000-2001 market -- not to mention the 2007-2008 market top. Investors should expect a 35% to 50% market correction over the next 12+ months.

That said, the next few weeks will become very difficult to trade simply because the market is starting to get choppy with wild intraday price swings. This is because retail traders are becoming more bullish than ever on stocks while the large institutions are starting to distribute huge amounts of shares to these 'undereducated' investors who don't know technical analysis and stock-market cycles.

My current mindset has been to go into the markets for as little as 48 hours and then exit with a nice profit using a strategy known as 'Price Spikes'. This has worked out very well this year capturing quick profits from these market “price spikes’. It’s a simple “get-in-and-get-out” strategy for highly volatile markets.

Good times are coming for active traders and investors, so buckle up!

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