Energy stocks will power higher: Brian Shannon

Energy stocks have been taken out behind the woodshed of late. The Energy Select Sector SPDR (XLE) was cut from over 100 in the middle of August to under 80 earlier this month.

Is it a buy here? Brian Shannon of Alpha Trends thinks so.

Brian Shannon of Alpha Trends says energy stocks have hit a key trend line that has been in place since 2011.
Brian Shannon of Alpha Trends says energy stocks have hit a key trend line that has been in place since 2011.

The XLE “came down to a trend line that’s been in existence from 2011, and it actually found some support just at the 2011 highs - near that $80 level. It’s starting to bounce a little bit and I think that again we had this huge volume wash out in the XLE and it’s setting up and bouncing so far.”

Shannon says if support holds at that 78-80 level the next stop could be 90-95. With the ETF up more than one percent in early trading, it would seem that is the case. But don’t get overly concerned if it creeps higher the hard way.

“I don’t expect it to go straight up,” Shannon notes. “If we kind of settle down a little bit, rebuild a base, these stocks I think have probably seen the worst, definitely for the year and going forward for the next six months or so.”

If you’re looking to get into the XLE here Shannon says to set your stop at 78.50. “If we get down below that on the XLE then we have to reconsider and think maybe we’re gonna head lower again. But given the magnitude of the sell-off I think that is an unlikely scenario.”

More from Yahoo Finance:

Alibaba’s buyable bottom

Keep an eye on the S&P 500's 200-day moving averge and here's why

Advertisement