Falling Channels Falling Down
Both crude oil, as well as energy stocks such as RIG, are acting like more longs remain trapped in them rather than a scenario where longs have already capitulated and we would therefore be closer to a bottom.
On the XLE, energy sector ETF, daily chart below, note the well-defined falling channel pattern which took hold since mid-December. There were plenty of moments where bulls could have seized back the initiative and broke this channel higher. But, instead, large cap integrated issues like CVX HES XOM remained notably soft. Eventually, this pressure brought down the other energy names which had been holding up better.
Moreover, from a technical perspective when we see a falling channel which drags on too long and subsequently sees the bottom begin to fall out, like we are seeing today, it raises the risk of an imminent washout lower as longs begin to finally have the epiphany that hey have been had--The upside channel break simply did not come.
Indeed, the falling channel, or falling wedge, can be a thing of beauty for bulls when we see upside resolution. But there is a flip side to that coin which bottom-fishing energy bulls are discovering now.
In front of a jam-packed day tomorrow or crude inventory and The Fed, recent calls for oil to be ripe for a bounce from oversold conditions may face a bit more heat, yet, before they prove true.
Simply put, there is no need to become too involved in the crude oil energy patch, at the moment. We have been avoiding the space for Members for a while now and have no plans to change, just yet