While U.S. crude oil may have had a slightly up day on Monday, contracts on Brent crude hit their lowest prices in over two years as it dipped under the $97-per-barrel level. In the last three months alone, Brent crude is down nearly 15 percent while West Texas Intermediate crude is down 13 percent.
Sinking oil prices may be great at the pump, but they're helping to drag oil stocks down. Since the start of the month, the ETF tracking the energy sector (trading under the ticker symbol XLE) is down 5 percent.
But does this latest drop in the XLE mean a buying opportunity for investors, or is it a falling knife?
"This is a falling knife," said Gina Sanchez, founder of Chantico Global.
A strengthening U.S. dollar, expectations of higher U.S. interest rates and feeble economic data out of China are all putting downward pressure on oil, according to Sanchez, a CNBC contributor. "Those are three different reasons why you probably should expect lower oil prices, even considering how low they've gone so far," she said. "There's more downside from here and I think that's going to leak into the XLE."
Richard Ross, global technical strategist at Auerbach Grayson, agrees with Sanchez that the XLE could see lower prices ahead. After the XLE made a bearish double top over the summer, the XLE broke below its neckline support around the 50-day moving average, around $98 per share.
However, he says there's some support near its 200-day moving average at around $92 per share. Interestingly, that's the same support level he sees in the WTI crude contract.
"Here we are, 7½ percent off the top and testing what's critical support here around that $92 level," said Ross, a Talking Numbers contributor. "Importantly that's also a key support level for WTI crude. The two trade in tandem here. So clearly, you want to be watching WTI."
Like Sanchez, Ross maintains that there are headwinds in the form of a stronger U.S. dollar and higher rates but were the XLE to bounce from the $92 per share level, "then you want to be a better buyer on that pullback," he said.
Yet that's not the lowest price Ross is targeting for the XLE. "I do see better support down around that $89 level," he said. "That would be a 13 percent pullback from peak to trough and that's a pretty big pullback in this bull market."
To see the full discussion on oil and energy stocks, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.