The bounce in US Equities should be nearing conclusion over the next 24-48 hours, and it’s thought that prices might be still vulnerable to selloffs into end of Q2. Wednesday’s initial Equity decline failed to get much traction before turning higher, and both Treasuries and Equities seem to be back on track. Interestingly enough, the bounce in both could prove short-lived for now, and might give way to a pullback in Equities as Treasury yields push back higher. Similar to yesterday’s thinking, upside should prove limited to 3850-3975 before turning down to challenge and likely break last week’s lows. This in turn should create an excellent buying opportunity into end of quarter, as it’s expected that major lows should be right around the corner. Any decline back under 3707 would suggest a move back lower to test and break lows should be underway with ultimate support targets at 3505-3600. Bottom line, this would be the important downside area to keep in mind for those who might be more trading oriented.
Crude oil decline at/near support; Expecting three-wave bounce before further selling into July
The severe setback seen in Crude and Energy stocks looks to be nearing support after a very steep selloff in recent weeks. Crude likely holds $101 initially and then regains about 50-62% of the prior decline. This targets $112.70 or even $115 but ultimately should weaken back to challenge and violate this week’s $101.53 lows in front month WTI Futures.
The hourly chart below shows this decline having played out in five impulsive waves lower. The actual dollar decline of waves 3 and 5 actually are nearly equal, which should mean that $101 is not immediately undercut.
Overall, it looks right to cover Energy hedges/shorts and expect a rebound in Energy into end of quarter after more than a 12% decline in the last five trading days. Technically, I like buying into this decline, expecting that Energy should fare better than Technology into end of Quarter.
Energy ETF’s also look right to buy after recent deterioration
The three common ETF’s that I frequently mention to discuss the Energy sector are now at attractive support to buy dips: XLE, OIH, and XOP. Thus, while the broader market might still undergo some turbulence between now and end of quarter, Energy’s recent deterioration likely has reached good levels to buy.
Overall, XLE has proven stronger than OIH and XOP lately, and this goes hand in hand with how XLE might be expected to perform during a time of market duress.
As daily charts show below, XLE has suffered nearly 20% since the June 8 intra-day highs of 93.31. Its pullback successfully held above April lows, and this area is considered important given the trendline support connecting both March and April lows.
XLE is thought to be stronger than OIH which broke down under May lows last week. However, XLE, OIH and XOP all look to be bottoming in the near-term, and I expect counter-trend snapbacks in all of these in the weeks ahead.
Key resistance for XLE lies at 80, then 82.75; Resistance for OIH lies at 262.50, then 272.94. For XOP, these levels lie at 142.66 and then 147.96.
It’s important to note that I am not expecting an immediate move back to new highs right away for Energy. This recent decline has proven problematic for the daily trends and momentum for Energy. Furthermore, the Elliott-wave structure in WTI Crude oil is suggestive of a bounce only before additional weakness into July. Thus, for traders, Energy looks compelling to own after recent damage. For investors, a bit more weakness is likely going to play out into July before stocks become more attractive to buy for intermediate-term purposes.
My favorite Energy longs to consider here are XOM, CVX, APA, PXD, and FANG.
Utilities sector bottoming and a sharp bounce looks likely
Finally, the Utilities also look to have hit very important support after recent weakness, and this pullback provides buying opportunities for those that are looking. While defensive groups have done well all week, this strength has been largely led by Healthcare, REITS and Staples, while Utilities haven’t fared as well.
That looks to be changing given the Treasury rally, and yields having pulled back in recent days has coincided with Utilities having stabilized at an area of trendline support connecting lows over the last few months.
Daily charts of the S&P Utilities Sector SPDR ETF, XLU -0.25% , has rallied to multi-day highs on Wednesday, and this looks likely to drive further near-term outperformance.
My favorite Utilities to own for a bounce include: XEL, AEP, DUK, SO, D. Laggards like AWK also might rally, though this should encounter much stronger resistance on rallies and should be something to sell into/short, vs expecting too much upside.
