3 ETFs are testing key levels, and they could be about to break out

Three big sector ETFs — energy, health care and tech — are testing key levels, according to one technician who believes all three could be on the verge of a breakout.

The first is the energy-tracking ETF, the XLE, which has rallied about 5 percent in the past three months thanks to a 15 percent surge in crude oil during that time. And now Miller Tabak technician Matt Maley believes XLE could be headed for an even bigger rally.

"We see the XLE moving up towards the $70 level; that's been tough resistance for the energy area for a couple of weeks now," he said Tuesday on CNBC's "Trading Nation." "If it can break above that level, that's going to be very positive, and especially if we can get oil back to $60 for the first time in a long time."

The last time crude oil traded above $60 was back in June 2015. At that time the XLE was hovering around the $76 level.

Second, Maley pointed to the health care ETF (XLV), up 22 percent this year, which has been "bouncing around in range" since September. Maley's now looking for health-care stocks to possibly break out above resistance at $84.

"If it can break above its October highs of 84 in any meaningful way, the ETF could/should attract some momentum money as we move towards the end of the year," Maley said.

The third is XLK, which tracks technology stocks. Tech stocks have bounced back in the past week, rallying 2 percent to return to November highs. But despite the tech sector rally, Maley does see one troubling trend emerging in the space, thanks to the recent underperformance of chip stocks. The semiconductor ETF (SOXX) has actually fallen 5 percent in the past month while the XLK has bounced back, a trend that concerns Maley, as many of the chip stocks in the SOXX are also among the biggest holdings in XLK.

"If [the divergence] keeps widening out, that's going to be a big problem," he said. "So it'll be interesting to see if the XLK can break out if the semis can't follow."

Gradient Investments senior portfolio manager Mike Binger has his eye on XLE and believes that of the three it's the one to buy into year end.

"Half that ETF is Exxon, Chevron and Schlumberger; those are energy and oil-related companies," he said on "Trading Nation." "We're seeing a lot of stabilization of oil prices, and I think that will continue here in the high $50s. Those three stocks have been dividend yields; I think you could actually add to the XLE here now."

This is opposed to adding to the XLV and XLK, both of which in Binger's view you want to avoid as a whole. In the case of health-care stocks, Binger actually recommends looking at the biotech-tracking ETF (IBB) instead, as many big pharma names are "challenged." IBB has actually rebounded in the past month and is now up almost 3 percent in that time.

As for the XLK, Binger believes that a lot of big tech names are "extended" and investors are better off going into individual growth names such as Facebook and Alphabet.

Videos

Trades to Watch

Trader Bios

About

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

Connect