Trader’s Narrative

Continuing to look at the energy sector, here is another chart that shows some interesting technical characteristics:

A shallow angle of ascent provides for an uptrend’s longevity. But as it ramps higher at a steeper and steeper slope, then the trend is either about to end or reverse.

You can see in the case of S&P Oil & Gas Exploration SPDR (XOP) ETF that the uptrend has changed slope three times. Each time becoming steeper. According to traditional technical analysis this is a sign of exhaustion. No trend can sustain itself for much longer once it has intensified three times.

Another important element is the formation of a shooting star candlestick formation on the weekly chart. This is another sign of impending trend exhaustion. It is significant only after an uptrend. You can find others on the chart, for example the first week of November 2007.

Think of shooting stars as inverted hammer candlesticks. Just as hammers are bullish when they occur after a downtrend, so are shooting stars bearish after an uptrend.