It's time to revisit XEG.TO which is a solid representation of the Canadian Energy Sector.
With the slide in Crude oil prices in the last few months from the $105 area to around $80, energy stocks were taken for a ride in the same direction. DOWN.
A recovery rally has occurred after such a dramatic fall and now the question is, was that it? Or is there more pain to come? Unfortunately no one will know for sure but we can use price as a guideline as to where a low risk entry point may be.
On a weekly chart price has moved from around $21 to a low of $15.27 and now we have rallied to around $16.50. There is good solid support in the $14 dollar area from the lows made in May 2012 and September 2011. This is a critical area of support in the longer term outlook. Will prices revisit this area again? If we fail to stabilize above the lows made this week then a revisit could be possible.
As of right now the sector has transitioned into a downtrend and any rallies need to be treated with suspicion.
Trying to pick a bottom is extremely difficult so letting things settle down and normalize is the prudent thing to do at this stage. The bottoming process takes time and I will be watching the sector closely for clues that the selling is indeed done.
The first thing I'm looking for is the bottom from this week to hold for a least a few trading days. If price doesn't hold the lows from this week the next leg down should take price to the $13.50 - $14.00 area shown in the chart below.
Click on chart to enlarge.