Energy Stocks Face Key Resistance Level as Oil Tries to Push Higher

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Oil prices have enjoyed a strong rally lately, up almost 30% from the August low and now hitting multi-year highs.

The recent output decision by OPEC only aided in the recent move higher.

Obviously the rise in oil has been a boon for energy stock as well, with the Energy Select Sector SPDR ETF  (XLE) – Get Energy Select Sector SPDR Fund Report rising 24% from the August lows.

Energy is easily the best-performing sector on Friday, as it vies for investors’ attention after the monthly labor report was issued before the open.

Earlier this month, Exxon Mobil  (XOM) – Get Exxon Mobil Corporation Report outlined just how good rising oil prices can be for its bottom line, so it’s no wonder these stocks are doing well.

While I outlined the pullback in oil prices in early August, we then looked at oil prices again and determined that the commodity could rally back to the highs.

But what are the technicals telling us for energy stocks now?

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Weekly chart of the XLE ETF.

Chart courtesy of TrendSpider.com

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Notice the high-volume rip we saw in November 2020, which registered the highest volume in several years.

The rally helped kickstart a much larger move in energy stocks, as we’ve seen the XLE ETF push higher throughout 2021.

As it continues to ride the weekly VWAP measure higher, we saw a strong rally from this measure just three weeks ago. It sent the XLE back over $50 and up to potential resistance.

The $55 to $56 area was solid support before the COVID selloff in March 2020. However, notice how much pressure energy stocks were under before the pandemic hit.

The writing was on the wall.

On the ensuing rebound, it’s important to note that the $55 to $56 area has gone from support to resistance. The XLE is also running into the declining 200-week moving average.

This is an important area to watch now. If oil can continue to push higher, then it’s possible for the XLE to breakout over this area. If it does, it could open the door to the 200-month moving average, all the way up near $65.

Should the XLE pull back from here, let’s see if the 10-week and 21-week moving averages can buoy the ETF. Below these measures puts the all-important weekly VWAP measure back on the table.