One of the main drivers of the S&P/ASX 200’s bullish trend is the Energy sector. This GICS sector (ASX: XEJ) includes explorers, producers, marketers, refiners and transporters of oil, coal, gas and other consumable fuels.
Oppositely to the main stock indices that started rebounding in March this year, the XEJ index hit a low and bounced back several months earlier, in last November (point B on the chart). This low was posted on November 21 at 10,497.9 points in intraday session. Yesterday the XEJ closed at 16,550.10 points after reaching a high of 16,804.20 points.
This means that it has already rebounded by 60% since last November. And it is probably not finished yet.
The price action has already retraced a significant part of the decline occurred last year (between points A and B which are the two limits of the bearish trend). Applied to this decline, the Fibonacci retracement levels have been so far very efficient tools for indentifying technical resistances to the current rebound.
The 50% Fibonacci ratio corresponds to the area around 15,300/15,400 points. It has prevented several times a further momentum during three months (points C, D and E) between May and early August. The last ratio (61.8%) has also acted as a resistance (point F) in late August when the XEJ reached the level of 16,518 points then corrected immediately.
However it seems that this last Fibonacci resistance has been cleared with yesterday’s price action. A higher close today would confirm that the bullish trend in place for the last 10 months is still valid.
The short-term perspective remains bullish as shown by the Stochastic Momentum Index. The Relative Strength Index (RSI) does not indicate any overbought configuration as the bullish trend so far has been regular.
That’s why a continuation of the positive price action is likely from the current levels. There is no obvious target on the upside but the area between 17,500 and 18,000 points might be one. This would be another 7% higher.
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