The S&P Select Energy ETF (AMEX: XLE) is at a crossroads right here. On one hand, I can make the case that all of the action since the 9/21 high at 76.30 represents a high-level congestion area between 76 and 73.50, which when complete (in a matter of hours) should resolve itself in one more thrust to new highs that projects to 78-79 prior to the end of the entire upleg from 8/16 (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.

By Mike Paulenoff

Mike Paulenoff is author of the MPTrader.com (www.mptrader.com) , a real-time diary of Mike Paulenoff's trading ideas and technical chart analysis of Exchange Traded Funds (ETFs) that track equity indices, metals, energy commodities, currencies, Treasuries, and other markets. It is for traders with a 3-30 day time horizon, who use the service for guidance on both specific trades as well as general market direction

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