Oil & Gas Exploration SPDR Charts a 'Shooting Star'

Continuing to look at the energy sector, here is another chart that shows some interesting technical characteristics:

A shallow angle of ascent provides for an uptrend’s longevity. But as it ramps higher at a steeper and steeper slope, then the trend is either about to end or reverse.

You can see in the case of S&P Oil & Gas Exploration SPDR (XOP) ETF that the uptrend has changed slope three times. Each time becoming steeper. According to traditional technical analysis this is a sign of exhaustion. No trend can sustain itself for much longer once it has intensified three times.

Another important element is the formation of a shooting star candlestick formation on the weekly chart. This is another sign of impending trend exhaustion. It is significant only after an uptrend. You can find others on the chart, for example the first week of November 2007.

Think of shooting stars as inverted hammer candlesticks. Just as hammers are bullish when they occur after a downtrend, so are shooting stars bearish after an uptrend.

Comments

[Kezorm:]

I don't know anything about TA, and must admit a certain contempt for it, but here is a question: Wouldn't such accelerations in the uptrend be the natural outcomes of a genuine, historical mismatch between supply and demand? Image an affluent, and extremely large crowd locked in a giant cavern, and the concession stands have a limited number of hotdogs and sandwiches to sell. Wouldn't the price of the sandwiches tend to accelerate in waves, just like your chart, as people begin to realize their predicament?

Another question. Suppose the world is making a transition from undervaluing oil, in times of surplus production to one where it's importance and finite supply are finally recognized. What might the shape of that curve be during the transition? Even if we can drill and generally innovate our way out of the scarcity crisis, the curve during that crisis might look very much like the present curve.

2008 May 31 09:31 PM