How to Play the Setup in Energy Select Sector SPDR

Published on Thursday, 08 November 2012 08:42 Written by TradersHuddle Wire

New York, November 8th (TradersHuddle.com) - Energy Select Sector SPDR (NYSE:XLE) closed the trading day at $70.85, near its 50 day and 200 day moving averages set at $73.15 and $70.51 respectively. Energy Select Sector SPDR's price action placed the stock above the 200 day moving average but below its 50 day moving average, a setup that signals a possible break out.

Energy Select Sector SPDR (NYSE:XLE) is an ETF that seeks to provide investment results that correspond to the price and yield performance of the Energy Select Sector of the S&P 500 Index. Energy companies in the Index primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services. The Fund utilizes a passive or indexing investment approach to attempt to approximate the investment performance of the Index.

Energy Select Sector SPDR seems to be setting up for a tight range between the 200 day moving average as support and the 50 day moving average serving as resistance.

A tiered approach, appears to be the best strategy to maximize possible movements in the stock, as traders could establish a small position in Energy Select Sector SPDR and wait for the stock to break out above its 50 day moving average at $73.15. Then they could add to the position as momentum builds with the breakout. On the flip side, if support being referenced at the 200 day moving average set at $70.51 breaks, it could signal further downside pressure for Energy Select Sector SPDR.