The Energy sector is vulnerable from technical and macro fundamental perspectives
Technically, the Energy sector (XLE) is overbought by its distance from the daily SMA 50. RSI and MACD are starting to look like a potential roll over. But most importantly, the Energy sector is intact and trending up! It’s a bull market, after all.
However, with momentum weakening and the ongoing NFTRH view that inflation is fading and so too will the ‘inflation trades’, the “last inflated man standing” could get a hard pullback if the inflated economy continues to show signs of easing.
There is clear support around the 50% Fib retrace and the SMA 50 at 82 (+/-). A significant correction, the likes of which the Energy sector has already taken twice in 2022, could bring it to a test of the SMA 200, which could by such time meet up with the 62% Fib retrace level at 78.59.
From the always helpful Daily Shot, look who is most vulnerable to earnings revisions in a bad economy, along with Financials. These both happen to be cyclical ‘reflation’ sensitive items and thus, since the Fed builds reflation by inflation, cyclical inflation sensitive as well. As a side note, it’s no coincidence that Healthcare, Staples and Utilities are considered defensive during economic recession.
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