Trading Idea: Momentum Building in Energy Select Sector SPDR

Published on Thursday, 07 March 2013 08:42 Written by TradersHuddle Wire

New York, March 7th (TradersHuddle.com) - Shares of Energy Select Sector SPDR (NYSE:XLE) closed the trading session at $78.21 with its price action in a very tight range, given that calculated support is set at $75.46 and the calculated resistance is set at $79.51.

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's stock price action indicates that both sellers and buyers are materializing very close to each other. This signals an area where momentum is building, since the stock can resolve by breaking out of the developing tight range.

Traders wanting to establish a position should pay close attention to Energy Select Sector SPDR's price action, as any movement outside its predefined range of $75.46 and $79.51 could grasp the attention of momentum buyers that look for a big movement in the price of the stock. Traders need to be aware that tight range resolution works both ways, hence, a move below support could spark above the average selling. A tiered approach could be the best way to start a position; enter into it while the stock is in the tight range, and then add to this position as it breaks and closes above resistance.