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Energy Sector Fails To Rally From Extreme Oversold at Trader’s Narrative

Here’s a review of the previous post on the energy sector:

On September 18th, 2008 I wrote that the energy sector presents a bounce opportunity. As the chart of the S&P Energy Select Sector SPDR ETF (XLE) shows, the bounce was a feeble one which failed within a few days:

energy sector select etf XLE Oct 2008

But the rational for it remains. The bullish percent index for the energy sector is now the lowest for any sector in the market. The only other sector close to scraping the bottom is the industrials at 3.57%.

bullish percent energy sector oct 2008

What is very strange is seeing the energy sector and the transports in alignment. I mentioned the oversold transportation sector earlier this morning. So what we may end up seeing is the strange case where both of them rally together.

Of course, sectors don’t just rally because they are oversold. Although it is rare, they can and have gotten down to zero. We are approaching DEFCON 2 - if the sentiment overview is anything to go by. And although it sounds absolutely crazy, now is not the time to be selling but rather coming up with a game plan to go long.

The days ahead will demonstrate for traders why being disciplined in respecting stop-losses is more valuable than having the conviction behind a position.

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3 Responses to “Energy Sector Fails To Rally From Extreme Oversold”  

  1. 1 pej

    I think that’s a good buying opportunity. I just bought some energy stocks :-)
    Also, remember the VIX the comment a few days ago? We just have been through the probably historical high of the VIX and I think I’ll keep my puts (just sold 20% of my puts now).

    I have put a comment on my blog yesterday: We are NOT done yet

  2. 2 Babak

    no we aren’t done yet… but I think we are close, very close

  3. 3 pej

    I guess we will have a technical rebound for the next few days (speculation on finding a savior in the central banks), but even that is not sure given the bad real news.
    anyway, wait and see and fingers crossed!

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