The multi-month decline in oil may or may not have run its course, but the SPDRs Select Sector Energy ETF, XLE, looks to be setting the stage for a potential turnaround.
It has already lifted from the mid-January low to establish a higher low in late-January, both of which are technically positive. The higher low indicates a willingness on the part of buyers to step in and provide some support via buying the dip.
The next order of business will be to clear the lateral resistance zone near $81 which was respected in December, and so far in February. Technically, the pattern in play is an inverse Head and Shoulders pattern, which would be confirmed upon a break above that lateral resistance at $81 (the neckline). Such a move would project a measured move equivalent to the distance from the head to the neckline, which is roughly $9. That could push this ETF back to the $90 range.
It’s noteworthy that IV Rank is hovering near 50%, which it has basically held above since Thanksgiving. This is the threshold for richer option premiums, so a rally in price looks likely to further depress option premiums. Should we happen to see that, put and call sales should be postponed until higher volatility returns to this ETF.