The S&P 500 chart displays signs of weakness, particularly as it broke below the 21-day exponential moving average, signaling a potential bearish trend.
But while there is a risk that the major indexes may decline as a result of the continued rise in bond yields, owing to concerns about inflation and interest rates remaining elevated for longer than expected, there are certain sectors or stocks that could still hold their well. Despite the Fed’s sharp tightening of its belt, inflation is showing signs of re-accelerating and economic data has remained quite resilient. So, the key question is whether further weakness may be on the way. As traders, we must be prepared for both scenarios, and keep a close eye on key levels of indexes, and sectors individually.
Last Thursday for example we saw a big bearish reversal candle form on the daily timeframe, albeit we didn't see any immediate downside follow-through. Nevertheless, it is a bear signal that has not yet been invalidated by bullish price action as we haven't crossed above that candlestick’s high. The bears, meanwhile, have now had a few bearish signals to work with, although they will need to show a lot more effort to change the trend completely in their favor. This 21-day eMA happens to come in right between the key short-term resistance range in the 516.00 to 518.22 area, which was formerly support and resistance.
Therefore, we still don't have any bearish signals on the XLE which remains poised to potentially rise towards 100.00 and possibly even the 2014 high at 101.52. Key support comes in at around that breakout area of 93.69 to 94.71.XOM broke out above the previous resistance in the 119.63 to 120.70 range at the back end of last week. On Wednesday, recovered from earlier weakness to close at a new 2024 high, holding above the breakout area.