Companies that do business in the oil, gas and consumable fuel, energy equipment, and related service industries have been quietly outperforming other segments of the market over the past several weeks. Recent breakouts on the charts from across the energy sector, three of which are discussed in the paragraphs below, are causing active traders to take note, and many are now talking of a continued move higher for the remainder of 2018. (For more background, check out: Top 4 Oil Stocks.)
Trendlines are commonly used tools by active traders because they clearly outline key areas of support and resistance. Taking a look at the Energy Select Sector SPDR Fund, you can see that the dotted trendlines have acted as predictable guides for traders looking to place orders since May of this year. Traders will be particularly interested in this chart because the bounce off of the 200-day moving average and subsequent close above the resistance level is a technical signal of a major shift in trend. This suggests that prices could be poised for a sharp move higher. Based on this pattern, traders will likely set their target prices above $82 based on the height of the pattern. Target prices are often calculated by taking the height of the pattern and adding it to the entry point. (For related reading, check out: Active Traders Looking for Bounce in Energy Stocks.)
When it comes to the energy sector, the 800-pound gorilla is Exxon Mobil. With a market cap of more than $363 billion, the company is often viewed as a barometer for the sector's performance. Fundamentally, Exxon Mobil accounts for nearly 23% of the XLE fund's holdings, and as you can see from the chart below, the recent close above the trendline suggests that the group could be ready to make a move higher. Those who follow technical analysis will likely look to the break above the nearby trendline as a sign that the bulls are in control of the momentum, and many will likely place stop-loss orders below $79.41 in case of a sudden sell-off. Target prices could likely be set north of $89.30, which is the high over the past 52 weeks.
Chevron is another major oil and gas company that active traders look to as a gauge of investor sentiment. Taking a look at the chart, you can see that the price just broke beyond the resistance of a short-term channel pattern, which suggests that the bulls are in control and that the momentum could continue upward. Stop losses will likely be placed below $120.01 in case of a sudden shift in fundamentals, but the outlook appears positive for the remainder of 2018. (For more, see: 5 High-Quality Oil Companies to Consider Right Now.)
The Bottom Line
Energy companies have been outperforming many other areas of the financial markets, especially when it comes to the commodities segment. Active traders will likely want to take note of the recent breakouts beyond key trendlines across the sector, which are suggesting that prices could be poised for a run higher into 2019. (For more on this topic, check out: 3 Oil & Gas Stocks Ready to Bounce.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.