Charts indicate a near-term rally in energy stocks will continue. How to play it

A relief rally in crude oil prices has instilled a positive short-term momentum shift behind energy stocks. We expect the rally to persist in the near term, noting WTI crude oil futures have cleared their 50-day moving average, and energy sector benchmarks have positive technical catalysts such as MACD “buy” signals. The Energy Select Sector SPDR (XLE) has cleared short-term resistance from the daily cloud model, denoted by the shaded area on the accompanying chart. The rally reversed XLE’s five-month downtrend and marked a successful test of long-term support from the rising weekly cloud model. The set-up is supportive of short-term upside follow-through for XLE and its largest constituents, like Exxon Mobil (XOM) , which accounts for about 23% of the fund’s weighting. The breakout in XOM could be a boon to the sector longer-term, but this will likely be contingent on whether WTI crude oil can hold up above long-term support in the low $60s/bbl. Final resistance for XLE is approximately $99. XOM has cleared long-term resistance near $120, leaving a major breakout pending confirmation on a second weekly close above that level, likely this Friday. Breakouts tend to generate additional momentum, which would be welcomed by investors, noting that XOM has been range-bound for about two years and the monthly MACD has the potential to flash a ‘buy’ signal this month after having rolled over in mid-2023. The breakout in XOM allows for a technical price objective of $136, based on a measured move projection. Support is defined by the 200-day moving average, near $112, which served as the staging ground for this rally. However, we can revise support to $120 if the breakout is confirmed for a better long-term risk/reward profile. The primary risk to trading energy stocks right now is geopolitical, with global tensions having the potential to affect the price of crude oil. With this in mind, we would be sure to manage risk through a stop-loss discipline or a hedging strategy. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. 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