Note: I am composing this on Thursday afternoon, so the charts will be up-to-date as of then.
I’ve probably over-mentioned this, but energy is my favorite bearish sector. I’ll start off with the commodity fund, Invesco DB Commodity Index Tracking Fund (NYSE:DBC), which has completed a well-formed diamond pattern. These are rare (well-formed ones, at least) and important reversal signals.
More specifically, energy has been breaking down for many weeks. First, it failed its ascending trendline that goes back almost 10 months, and second, it double-topped and broke resistance with a gap-down on Thursday.
I have set myself up to benefit from this observation by way of October Energy Select Sector SPDR® Fund (NYSE:XLE) puts, which is my largest position by far. This head-and-shoulders pattern is complete, and I think its major support is a long way from here, somewhere in the mid-30s.
I found the SPDR® S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) pattern choppier and less appealing, what I will say this: XOP’s ability to bounce up to its 50% Fibonacci resistance line perfectly and then turn tail was an eye-opener.
