The S&P Select Energy ETF (XLE) is at a crossroads right here. On one hand, I can make the case that all of the action since the September 21 high at 76.30 represents a high-level congestion area between 76 and 73.50. When complete (in a matter of hours) it should resolve itself in one more thrust to a new high that projects to 78-79 prior to the end of the entire upleg from August 16 (62.73). However, if the XLE breaks and sustains beneath 73.50/20, then the "contained" pullback pattern begins to morph into a much deeper correction that likely presses towards 70.00 thereafter. Right now, although the bullish scenario is my primary view, I am also aware that after the next new high, I am expecting a very significant corrective period to emerge. In other words, anyone long the XLE had better be very nimble above 77.00 ahead of a nasty downside reversal. I will remain a spectator for a while longer, looking for an opportunity to sell short the XLE -- with any luck, into strength.



Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com, a real-time diary of his technical chart analysis and trading alerts on all major markets. For more of Mike Paulenoff, sign up for a free 15-Day trial to his MPTrader Diary by clicking here.