Where Oil Prices, Energy Stocks May Go in Q4

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)  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.

Chart courtesy of TradingView.com

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.

Chart courtesy of TrendSpider.com

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

The 50-week moving…

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