Here’s how you’ll know that it’s time to buy energy stocks: Technical analyst

Energy stocks tumbled Wednesday as oil sank after an eight-session win streak, leading Rich Ross to warn investors that there's only one level at which they should be buying into the sector at this point.

The group was the worst-performing one in the first half of 2017, and the Evercore ISI technician says that there are two main indicators to watch that will determine if energy is safe to get into again. On a one-year daily chart of the energy-tracking ETF (XLE), Ross says that since the start of the year, a "textbook definition of a downtrend" has plagued the sector.

But what's "interesting" about the downtrend line, according to Ross, is that since February it has run almost identically to the XLE's 50-day moving average. This leads him to conclude that both the 50-day moving average and the downtrend line both serve as "resistance," two lines that XLE has failed to surpass since February.

"Until we get back above this downtrend and back above this 50-day moving average, we do not buy it," Ross said Wednesday on CNBC's "Trading Nation," referring to the importance of the two lines.

Both lines are currently sitting around $67, which leads Ross to conclude that until XLE surpasses $67, investors should not buy energy.

XLE has fallen nearly 14 percent year to date, dragged down by oil, which has also dropped 13 percent so far in 2017.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more