Energy Is Setting Up Again

Hey, Ross here:

Energy deserves another look.

Buyers have stepped back in after the sector's latest pullback. And analysts have been raising their earnings estimates for energy companies faster than for most of the market.

That puts Energy back on my watchlist.

Take a look.

Chart of the Day

This is XLE, an exchange-traded fund that holds major U.S. energy stocks.

Focus on the right side of the chart.

The fund pulled back from its September high and found buyers around $61. That's close to an area that had repeatedly stopped earlier rallies.

This time, buyers defended it.

Then XLE pushed above the downward-sloping lines marking its recent decline. By end of Friday, it was above $65 – approaching the September high around $66.

I like seeing a former ceiling turn into a floor. It gives me a specific area to watch if the rally starts slipping again.

And the next test is clear: buyers still have to push through that September high.

So I'm watching for follow-through here. There's a setup developing, with a nearby obstacle we can actually identify.

Now look at the earnings picture.

This shows how analysts changed their third-quarter earnings estimates between August 28 and October 6.

Energy leads the upgrades among large and midsize companies. It also ranks among the strongest sectors for smaller companies.

In plain English, analysts expect these businesses to make more money than they expected several weeks ago.

Those profits still have to be delivered. But rising estimates strengthen the case for this recovery in energy stocks.

I wouldn't buy every energy stock because of these two charts.

Companies inside the same sector can have very different setups.

What they do give me…

Is a good place to start looking.

Insight of the Day

Keep watching the stocks that have stopped entertaining you.

A stock rips higher and everybody wants to know about it.

Then it spends weeks going sideways, or gives back part of the rally. Watching it gets tedious. Traders move on to whatever is jumping that morning.

By the time the old winner starts moving again, it's fallen off their watchlist.

That's an expensive habit.

Strong stocks often need time to digest a big advance. Some will fail completely. Others will hold support and start attracting buyers again.

You find out which by continuing to watch them.

With Energy, we now have a recovery from support alongside improving earnings estimates. That earns the sector another look, after its latest pullback.

From there, I want to get more specific.

I want to find the individual stocks with the most explosive breakout potential.

I’ll show you exactly what I’m searching for tomorrow morning – so keep an eye out in your inbox.

In the meantime, if you missed out on my YouTube Live session this morning where I broke down the market in real time…

Click here to check out the replay now.

Customer Story of the Day

"I am new to investing and love the help that Ross provides.

I have little means to invest so trying to follow the quick investments to build my cash flow for bigger investments.

Ben was great in leading me to make my membership a lifetime member in the Trading Club and all the services that Ross provides at this time.

I want to be able to have a good retirement and make sure my wife is taken care of if I go, due to my health from exposure to a toxin in my military service.

Watching Ross and speaking with Ben gives me the warmth and great feelings that I have become part of an extended family."

Embrace the surge,

Ross Givens