S&P 500 AND XOP OUTLOOK:
- S&P 500 starts the week on a positive note and climbs to an all-time high
- The Nasdaq 100 outperforms and gains 1.04%, lifted by large rally in Tesla shares
- XOP jumps to a 52-week high amid strong oil and natural gas prices
U.S. stocks started the week on the front foot, buoyed by widespread positive sentiment as earnings continued to beat expectations and Democrats in Washington moved closer to a deal on Biden’s “Build Back Better” plan to boost fiscal spending without raising corporate taxes. An agreement on a framework for the president’s broader agenda could break the logjam in the House and allow the lower chamber to pass the $550 billion infrastructure bill already approved in the Senate.
At the market close, the S&P 500 gained 0.47% to end the day at 4,566, a record close, while the Nasdaq 100 rose a little more than 1% to 15,514, helped by a ~13% rally in Tesla shares after Morgan Stanley raised its price target to $1,200 and the automaker announced that Hertz Global Holdings has ordered 100,000 of its electric vehicles to fuel its rental car fleet.
In the very near-term, earnings season will remain front and center, especially as technology heavyweights such as Alphabet, Microsoft, Amazon, and Apple are slated to report their results in the coming days. If these companies manage to surpass forecasts for both revenue and EPS and offer constructive profit guidance as Tesla and Netflix have done so far, the S&P 500 and Nasdaq 100 could be in the early stages of the next leg higher despite the Fed’s imminent tapering announcement, which is likely to come next Wednesday.
From a sector standpoint, traders should closely follow quarterly results from energy companies this week and next, particularly those in the exploration and production (E&P) segment, such as XOM, PXD, OXY, OVV, DVN, MTDR, APA, AR, among others. With WTI oil above $80 per barrel, natural gas near multi-year highs and a good outlook for these commodities, companies in the energy space are likely to postblockbuster profits and boost returns to shareholders. This may pave the way for a strong upside move in the XOP ETF over the medium term.
XOP TECHNICAL ANALYSIS
From a technical point of view, XOP spiked to a 52-week high on Monday, probing a key resistance in the 111.00 area, bolstered by strong oil prices and an outsize rally in natural gas. If bulls manage to push the energy-oriented ETF above this mark, buying momentum could accelerate, triggering bullish move towards the 133.20 resistance, the 2019 high.
On the other hand, if sellers regain the upper hand and XOP pivots lower, the first critical support to consider appears at 100, followed by 92.00. In any case, the bearish scenario is unlikely to play out at this time amid bullish sentiment towards stocks in the energy sector.
XOP WEEKLY CHART
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—Written by Diego Colman, Contributor