Rebound In Crude Oil Prices Trigger Big Gains In Energy

The bottoming formation in crude oil ($WTIC) continues to take shape and the beneficiary clearly has been the energy ETF (XLE).  Since dipping below $40 per barrel to begin August, the WTIC has rallied more than 20% in the past three weeks and is now nearing $50 per barrel.  A break above $50-$52 per barrel would be technically significant as it would confirm a bottoming (and quite symmetrical) reverse head & shoulder pattern with a measurement above $70 per barrel.  Check out the pattern:

The pattern does require a breakout for confirmation, but the possibility of a bottom in crude oil has sent traders scurrying into energy shares with the XLE performing very well relative to the benchmark S&P 500.  I would continue to overweight the energy space as long as the relative uptrend remains in play.  Check out the relative chart:

Note that both relative support and the relative uptrend line both intersect at .031.  Unless this area of support is violated, I'd continue to overweight energy stocks.

Happy trading!

Tom