Putting Oil in Your Portfolio


The sharp rally in crude-oil prices Tuesday was in contrast to the recent bleak global economic forecasts. MoneyShow’s Tom Aspray explains why two energy ETFs look attractive now.

Stocks were hit hard Tuesday, and overseas markets are lower again early Wednesday.

The damage has been most severe in the Nasdaq-100, which is already down 4.7% from the highs. The Dow Jones Transportation average was also weak, as it continues to diverge from the Dow Industrials, which has been a concern since early September.

One bright spot Tuesday was the crude-oil market, which closed sharply higher on heavy volume. Over the past six weeks, the energy sector has been doing much better than oil prices, as crude is down 8.6% from its recent highs while the S&P 500 Energy Sector is just 3.6% below its high.

Despite the increasing concern about the global economy and the waning belief that China will recover, many of the basic materials stocks, including energy, are painting a more positive picture. Therefore, increased exposure to the energy sector is recommended, and there are two energy ETFs that should be considered.

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Chart Analysis: The daily chart of the December crude-oil contract shows that it dropped as low as $88.09 last week, but held above the 61.8% Fibonacci retracement support at $87.42.

  • The next resistance is at $93.68 to $94.15, which if overcome on a closing basis would be positive.

  • There is major resistance in the $96 to $98 area.

  • The daily on-balance volume (OBV) is still below its short-term downtrend (line a), but did confirm the September highs.

  • The OBV dropped back to major support (line b) on the recent correction.

  • There is minor support now in the $90 to $90.60 area.

The S&P 500 Energy Sector hit a high on September 14 at 574.54, but seems to be holding support in the 544 to 546 area, which also corresponds to the May 2012 highs (line c).

  • The 38.2% Fibonacci retracement support is at 532.80, with the 50% support level at 520.60.

  • The daily relative performance or RS analysis turned positive in July, as it moved through resistance (line e). The RS line has now dropped back to this level, which is now important support.

  • The RS line moved back above its WMA yesterday, with key resistance at the downtrend (line d).

  • The OBV has again moved back above its downtrend (line f), and it appears that the uptrend (line g) has held.

  • A close back above daily resistance at 562.60 would be positive.

NEXT: Which of These Energy ETFs Are Good Buys?


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The SPDR S&P Oil & Gas Exploration (XOP) is a well diversified ETF whose top ten components do not make up more than 1.6% of the ETF.