The Energy Select Sector SPDR Fund (XLE - Get Report) is sliding lower faster than the Nymex crude oil contract. XLE is below its quarterly pivot at $66.62, which indicates risk to its monthly and semiannual value levels at $57.50 and $55.70, respectively.

The factor that can prevent extended weakness is stability in the nearby Nymex crude oil futures contract. Crude oil held its 200-day simple moving average at $60.94 and a "golden cross" may form soon. The weekly chart for oil is positive but overbought, but when it set its 2019 high of $66.60 on April 23, it showed a weekly slow stochastic reading above 90.00, which is an "inflating parabolic bubble." Oil stalled shy of its semiannual risky level at $68.52.

Oil may be lower since April 23, but it's up 35.6% year to date and up 42.2% since its Dec. 24 low of $43.30. XLE is up 11.2% year to date and up 19.5% since its Dec. 26 low of $53.36.

The two largest components of energy ETF are oil giants Chevron  (CVX - Get Report) and Exxon Mobil (XOM - Get Report) with weightings of 18.85% and 22.42, respectively. Both reported quarterly earnings on April 26. Both are now below their 200-day simple moving average as is XLE.

The Daily Chart for Crude Oil

Courtesy of Refinitiv XENITH

The daily chart for Nymex crude oil shows that the nearby contract traded as high as $76.90 on Oct. 3. From this high to the low of $42.36 set on Dec. 24, oil fell by a bear market decline of 45%. Since this low, oil is in bull market territory up 42.2%. The close of $45.41 on Dec. 31 was an input to my proprietary analytics and its annual value level lags at $38.76 with a semiannual pivot at $50.84. The March 29 close at $60.19 was an input to my analytics and a quarterly risky level remains at $68.52. The close of $63.91 on April 30 was input that resulted in a monthly value level at $48.57.

The Weekly Chart for Crude Oil

Courtesy of Refinitiv XENITH

The weekly chart for crude oil is positive but overbought with oil above its five-week modified moving average of $61.12 and above its 200-week simple moving average or "reversion to the mean" at $52.37. The 12x3x3 weekly slow stochastic reading is projected to end this week at 88.33 down from 92.02 when oil was as an "inflating parabolic bubble."

Trading Strategy: Buy weakness to the 200-day simple moving average at $60.94 and reduce holdings on strength to its quarterly risky level at $68.52. If oil gaps below the 200-day, the downside is to its monthly and semiannual value levels at $57.50 and $55.70, respectively.

The Daily Chart for XLE

Courtesy of Refinitiv XENITH

The daily chart of XLE shows the ETF has been below a "death cross" since Nov. 9 when the 50-day simple moving average fell below the 200-day simple moving average indicating that lower prices lie ahead. This negative signal was in play when XLE declined to its Dec. 26 low of $53.56. This day was a "key reversal" as the close that day at $57.19 was above the Dec. 24 high of $55.72. The Dec. 31 close of $57.35 was an important input to my proprietary analytics. This resulted in a semiannual value level at $55.70 and an annual risky level at $71.93. The close of $66.17 on March 29 was an input to my analytics and generated a quarterly pivot at $66.62, which failed to hold this week. The close of $66.11 on April 30 was input and generated a monthly value level for May at $57.50.

The Weekly Chart for XLE

Courtesy of Refinitiv XENITH

The weekly chart for XLE is negative with the ETF below its five-week modified moving average of $65.87 and its 200-week simple moving average or "reversion to the mean" at $68.07, which failed to hold a week ago. The 12x3x3 weekly slow stochastic reading is projected to fall to 75.81 this week down from 84.33 on April 26, falling below the overbought threshold of 80.00.

Trading Strategy: Buy weakness to monthly and semiannual value levels at $57.50 and $55.70, respectively, and reduce holdings on strength to quarterly and annual risky levels at $66.62 and $71.93, respectively.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low vs. the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.