$XLE was sharply pulling back in 2008 a few months ahead of the market collapse. It was telling market participants that weakness was around the corner. Anyone who took this as cue to exit longs positions was saved from a historic sell off in the stock market and a panicked revaluation of assets. It was, unlike the last 5 years, a great time to be shorting the market.
$XLE is falling again, this time from fresh record highs. The sell-off began before the stock market hit recent record prices. Is it telling us the same thing it was telling us in 2008? Are we headed for another market crash? Or have prices bottomed here and we will witness another move to fresh highs on the indices?
This morning I wrote about $XLE coming into the $80 support zone. It was there I opened up a short term call position in anticipation of a bounce. Bounce we did as $XLE moved from $80 to $82 in an hour.
The market has seen a lot of quick rallies with the recent pull back. The question is.... will this support at $80 last for $XLE? Or are we on the verge of a massive collapse like we saw in 2008 and into 2009? Is it really that simple? I think it is. We are at a key decision point that could determine where the market heads for quite a long time.
I can not say definitively whether or not we are in the early stages of a massive market rout, what I will say is that support has held. Also Central Banks remain on a global asset price protection scheme. They fear deflation worse than an Ebola outbreak.
If $XLE holds this support level, we could be at the start of another sharp rally for stocks. If it continues to collapse, we could be looking at another market crash that will be immune to any form of Quantitative Easing.