Energy Sector SPDR ETF (XLE) Price Forecast: Breakout Sets Stage for Next Advance

Long-Term Breakout Holds Firm

The State Street Energy Select Sector SPDR ETF (XLE) tracks the energy sector of the S&P 500, focusing on oil, gas, and energy equipment companies. It recently completed its first pullback following a long-term breakout to new trend highs. A low of $53.41 was established at the confluence of the 38.2% Fibonacci retracement and the 50% retracement zones two weeks ago, measured from the prior full upswing and internal advance, respectively.

The prior advance extended the long-term bull trend and included a breakout from a 21-month corrective phase. In addition, the rising 20-week moving average at $53.46 is on track to further validate support near the pullback low, reinforcing the significance of that price area as a foundation for the next leg higher.

Reversal Signals Gain Momentum

This was the first pullback since XLE reached a new trend high of $63.46 was reached in late January. On Monday, an upside breakout of an inside week triggered, followed by a three-week high above $57.72 on Tuesday. These are signs of strength that signal a bullish reversal and increase the likelihood of an upside continuation. A higher swing low has now been generated, while the 20-week moving average has been identified as a key trend indicator for that timeframe. Together, these developments strengthen the case that the recent correction was a healthy reset rather than the start of a broader reversal.

Daily Chart Confirms Support Zone

On the daily chart, XLE reclaimed both the 20-day and 50-day moving averages on Tuesday, and support was confirmed near those averages, with Tuesday’s higher daily low of $57.38. The reclaim of the two moving averages was confirmed by the session’s close above their price zone near $57.40. Notably, the breakout day occurred as the moving averages converged and identified a similar price level. This convergence of two indicators on a breakout day can sometimes lead to clearer price reactions. As a result, two bullish signals occurred on the same day, along with a new minor trend high.

Strength suggested by the reclaim of two key moving averages on the same day will begin to weaken on a sustained decline below Tuesday’s low. That would indicate a failure of support at the moving average convergence zone. Until then, the recent reclaim of trend support keeps the broader bullish structure intact. As often happens in strong trends, the first pullback after a key breakout can serve as a launching point for the next advance.