How to Use Technical Analysis to Identify Trading Opportunities. What Charts Say About 3 Energy Stocks -- Barrons.com

Dow Jones
Sep 30

By Doug Busch

Technical analysis comes with many terms that can be difficult for newcomers to grasp, but which are crucial to understand. With that in mind, I have created a glossary of some the more commonly-used terms. This glossary isn't exhaustive but will update regularly, so be sure to check back.

My approach to technical analysis begins not with individual stocks, but with the macro environment.

I need to first understand the context in which price action is unfolding. That means paying close attention to key intermarket relationships, commodity prices, and interest rates -- particularly the 10-year Treasury yield, which often sets the tone for sector leadership. Rising yields tend to pressure growth stocks while benefiting financials. Commodities, especially oil, can indicate inflationary pressure and influence industrial or energy sector exposure.

Once the broader picture is framed, I use both manual and systematic scanning processes to locate stocks with relative strength -- not just versus the S&P 500, but against their own sector peers. Strength by itself isn't enough, however. I'm looking for names that are not only outperforming, but doing so with meaningful volume. I screen for stocks trading above 300,000 shares a day that have a market capitalization of at least $1 billion. I also want to see stocks with strong closes, preferably making 40-day highs. I prefer important moving averages such as the 50- and 200-day simple moving average and 21-day exponential sloping upward. I factor relative-strength index $(RSI)$ to make sure potential candidates are leaders, average true range $(ATR)$ to ensure there's sufficient volatility and room for movement, and average directional index $(ADI)$ to determine the strength of a trend.

This narrows the universe, but the micro level -- the individual chart -- ultimately carries the most weight when it comes to choosing entry points. That's where conviction is built. I primarily use candlestick charts to identify key inflection points, reversals at tops and bottoms, and failed moves. Patterns like bullish engulfing, doji, or hammer candles near major moving averages or breakout levels provide critical clues about potential turning points and risk levels.

Equally important is the context in which these candles form. A breakout from a base pattern such as a cup with handle, ascending triangle, or double bottom has far more reliability if confirmed by volume. I also pay close attention to how a stock reacts to market weakness. Does it hold up better than others? That kind of relative strength adds to a bullish narrative.

Ultimately, while macro insights and quantifiable scans are indispensable tools in my process, it's the precision of technical analysis -- reading individual price action in context -- that determines whether I act. My goal isn't to predict the market, but to stack probabilities in my favor by combining structure, strength, and sentiment, with a focus on high-quality entry points and defined risk. Cutting losers quickly and letting winners run is crucial to long-term success.

Energy Stocks

With all that said, the energy sector has caught my eye and could be poised for a technical turnaround. After an extended period of consolidation and relative underperformance, many energy stocks have begun showing signs of stabilizing price action. Over the last month, the Energy Select Sector SPDR ETF is the third best-performing major S&P sector out of 11. The energy ETF is up 4% over this period, bested only by technology and communication services. Additionally it is hard to imagine that oil won't play a vital role in the AI infrastructure buildout and its demand for critical energy inputs. Let us take a look at three attractive candidates in the space.

Marathon Petroleum, a standout in the integrated energy space, has surged 41% year to date and pays a modest 1.8% dividend yield. The stock is riding a seven-week winning streak and its weekly chart has reset since the former break above a bull flag at the start of 2024. More recently, the stock cleared a textbook double bottom with handle pivot at $183.20, a base that took 18 months to form. Historically, breakouts from such long consolidations tend to carry higher success rates. With momentum at its back, the stock appears poised to retest its prior highs near $220 by year end.

Marathon Petroleum closed at $196.47 Monday.

Diamondback Energy is down 12% in 2025, but the technical setup suggests a potential reversal could be in the making. The stock has been carving out a bullish falling wedge pattern since mid-June, a classic formation that often precedes upside breakouts. This consolidation is unfolding just beneath the 200-day SMA, a widely-watched barometer of long-term trend. The stock has traded below this key level for nearly a year, but a decisive move above $148 could mark a trend shift. Should that breakout materialize, price targets in the $172 range should come into play by year-end. The stock also offers a 2.7% dividend yield, adding income to the potential for capital appreciation.

Diamondback Energy closed at $143.58 Monday.

Solar equipment stocks have begun to reassert leadership, and Nextracker stands out as a clear winner. Shares have more than doubled this year, tripling returns of the Invesco Solar ETF, and now trade just 1% off the 52-week high. Technically, the stock continues to stair-step higher on its daily chart, showing resilient price action since filling a gap from the Oct. 30 session in December. The stock has already recorded two double-bottom breakouts this year and in classic leader fashion, provided investors an additional entry point on a breakout above a bull flag, which aligned with the round $70 number. The current move targets a measured advance toward $87, a level that appears well within reach by year end.

Nextracker closed at $76.13 Monday.

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September 30, 2025 04:48 ET (08:48 GMT)

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