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Where Oil Prices, Energy Stocks May Go in Q4

Oil prices are hitting the lowest levels since January. Here's what the charts say for the fourth quarter.

Oil prices and energy stocks enjoyed a powerful bull market in the first half of 2022, while equities, bonds and other assets were all under pressure.

Even more impressively, energy prices were on the rise despite a strong U.S. dollar. It was clear there was a supply/demand imbalance and the geopolitical turmoil between Russia and Ukraine clearly did not help matters.

However, the third quarter has not been the same story.

Oil prices are down more than 37% from the second-quarter high and are down 27% so far this quarter.

The Energy Select Sector SPDR ETF  (XLE) - Get Free Report hasn’t sidestepped the pain either, although the losses aren’t quite as bad as crude oil. The XLE ETF is down 25.5% from the second-quarter high and is down almost 3% this quarter.

What do they look like going into the fourth quarter?

Trading Oil Prices in Q4

Daily chart of oil prices.

Daily chart of oil prices.

The daily chart above highlights a couple of key developments for crude oil. Early in the quarter, it did a good job holding the $95 area and the 200-day moving average, but $100 was acting as resistance.

Once support gave way, the 21-day moving average turned into resistance. That’s the trend we’re seeing play out now, as oil prices are now below the 2021 high and trading at its lowest level since January.

I want to see how the $77 level holds up, which is the 78.6% retracement. If oil bounces, see how it handles the declining 10-day and 21-day moving averages as these have been active resistance (particularly the latter).

Back above these measures puts $90 and the 50-day in play.

On the downside, $65-ish seems like a long way off — and it is, as it would indicate a 15% decline from current levels — but that area should be solid support if we see it in the next several months.

Trading Energy Stocks for the Fourth Quarter

Weekly chart of the XLE ETF.

Weekly chart of the XLE ETF.

As for the XLE ETF, investors may want to also keep an eye on Exxon Mobil  (XOM) - Get Free Report and Chevron  (CVX) - Get Free Report, which have a 22.6% and 20.7% weighting in the portfolio, respectively.

The 50-week moving average has been solid trend support for the XLE ETF for more than a year. However, this measure is now rejecting the ETF.

If the XLE bounces, I first want to see it reclaim the 50-week moving average. If it can do that, I then want to see if it can make a push for the declining 10-week moving average.

If the XLE continues lower, I am looking for a retest of the $66 level, which is near the July low. There we also have the 38% retracement from the all-time high down to the covid low of 2020, as well as the 200-month moving average. 

Below that area puts the $58 to $59 zone in play. That was a key breakout area early in the year, as well as the 50% retracement of the previously mentioned range.