Bottom at Last in Energy Stocks?

Energy stocks have been in a steady downtrend for more than 2 months. Today investors received the strongest indication yet that a reversal might be at hand with the two largest energy sector ETFs (OIH and XLE) both printing large bullish engulfing candlesticks on heavy volume:

OIH (Daily)

OIH_Daily_7.7.2015

 

 

XLE (Daily)

XLE_Daily_7.7.2015

 

 

The backtest results for bullish engulfing candlesticks are especially positive in OIH with two specific recent examples of bullish engulfing candlesticks taking place at the bottom of downtrends (December 2014 and March 2015):

 

Backtest

In my estimation, the fact that WTI crude oil also bounced off of the $50 support level increases the odds of a short-term relief rally in the energy sector. Today’s lows now become important downside reference points, particularly if we see follow through buying tomorrow.