Tuesday's ETF Chart to Watch: XOP

May.10.11 | About: SPDR S&P (XOP)

By Stoyan Bojinov

Wall Street got off to a quiet start yesterday, as investors were reluctant to aggressively jump back on board following last week’s volatile trading across both equity and commodity markets. Domestic indexes fluctuated between small gains and losses during trading hours on Monday, while overseas European shares tumbled lower after investor confidence sank following news of the S&P’s downgrade of Greek debt.

“In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds,” the rating agency said in a statement, also warning that more downgrades could soon follow. Shares of Citigroup (NYSE:C) jumped back to pre-crisis levels as the financial giant underwent a reverse split, which combined 10 outstanding shares of Citi stock into one new share, effectively reducing the number of Citigroup shares outstanding to 2.9 billion from 29 billion.

Gold advanced higher past $1,500 an ounce again following last week’s broad-based sell-off in commodities, while silver also recovered lost ground as futures contracts traded back above $37 an ounce. Oil futures also jumped on Monday after JPMorgan Chase & Co. (NYSE:JPM) raised its oil forecast for Brent crude to $120 a barrel from $110 for 2011. The bank is forecasting for supply to fall short of demand by as much as 600,000 barrels a day during the third quarter, even if OPEC increases output by 1.2 million barrels per day in the coming months.

Technical Analysis: S&P Oil & Gas Exploration and Production ETF (NYSEARCA:XOP)

On April 21, we issued a chart to watch for XOP when the fund was trading around $62 a share, citing it was likely headed higher towards $65. Our short-term analysis turned out to be incorrect, as the fund topped out at $64.13 a share in the days following, and subsequently fell hard along with crude oil futures last week. However, our readers were also advised to reconsider the current uptrend if XOP closed below $59.44 a share, which it did.

XOP fell as low as $56.51 a share during last week’s volatile sell-off in the energy futures market; currently the fund is trading just below $60 a share.

The longer-term technical picture for XOP remains bullish and last week’s sell-off presented a tremendous buying opportunity for short-term traders looking to play the bounce as well as investors looking to go long at a cheaper price. Consider XOP’s daily chart below.

[Click to enlarge]

Support comes in at $56.40 a share, while the next likely level of resistance is the $60 level. In our view, longer-term fundamentals are still supportive of rising oil prices, given the ongoing increase in demand from emerging markets, while tensions in the Middle East still pose major threats to supply. Look for XOP to close above $60 a share in the coming days to confirm the ongoing uptrend, while a dip below $56.40 would call for re-assessment of the uptrend.

As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Disclosure: No positions at time of writing.

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