Technical analysis for shorts & longs Message Board

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Strategies & Market Trends : Technical analysis for shorts & longs

SPY 677.58

+0.3%

Nov 5 4:00 PM EST

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To: E_K_S who wrote (49136)	1/31/2013 1:50:12 AM
From: Johnny Canuck	Read Replies (1) of 67677

Hi EKS, I think its is important to not mix the technical analysis with the fundamental analysis too closely in this particular case because of the how complex the moving parts are. From a technical analysis perspective I am not as pessmistic as the analyst you are referring to. Hopefully the settings will hold in the below graph, but the stockcharts.com site does not seem to transfer well to SI. You should be able to see from the chart that the +/-DMI and ADX that the XLE is extremely overbought, about as extreme a reading as you can get in a normal market. The only concern on this run up is that the OBV did not set a new high with the new high in the XLE. This is a concern but a new high in the OBV is not absolutely necessary for a sustainable rally. A new high could be made in the OBV after the re-test of the break out. The short term reason I do not see the XLE testing the June lows soon is there is a strong support area at 71 basaed on volume by price. Fundamentally I agree that refiners are benefiting from the lower than expected input prices on the spot market. They are getting higher prices because their production is forward hedged. It works when prices of commodities are falling and hurts when prices of commodities are rising as we saw 3 to 4 years ago. Note that a lot of the E&P companies are also forward hedged, so the only losers short term are the traders that sold the hedges. Most E&P companies have about 60% of their product forward heged as far as I can tell. As a result you won't see the full impact of lower prices in the earns of the E&P companies till the hedges expire later this year.and they have to renew. The make up of the XLE is made up of refiners, large E&P companies and drillers. The etf is weighed more heavily towards the E&P companies for a quick glance. etfinvestmentoutlook.com Beacause of the forward hedging and fact that the hedges probably expire differently at each company it is difficult to determine the exact effect on the XLE. Short term they should be more resilent due to the hedges, but the market looks 9 months out so traders would have to makes some pretty big assumptions to determine a bottom on any sell off. Short term I don't see the XLE breaking 71. If it does break 71 then all bets are off where the exact bottom will be.

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