The charts on this energy stock are pointing to a big move higher

Despite the energy sector trailing the S&P 500 year-to-date, PSX is exhibiting significant bullish technical developments, attempting a breakout above $135 from a cup-and-handle formation, with a measured upside target of $150 and a larger weekly pattern suggesting moves above $175, supported by positive momentum shifts in moving averages and RSI. This potential rally in PSX, a component of XLE and XOP, could act as a catalyst for broader sector strength, as XLE consolidates near highs and XOP forms a multi-year inverse head-and-shoulders pattern, indicating a possible durable long-term uptrend for the energy market.

Analysis

Despite the energy sector's notable underperformance year-to-date, with a gain of only approximately 6% versus over 20% for leading sectors like Communication Services (XLC) and Technology (XLK), specific technical developments in Phillips 66 (PSX) suggest a potential turnaround. The stock is exhibiting a bullish daily cup-and-handle formation, with a critical breakout point at the $135 resistance level. A decisive move above this threshold would trigger a measured-move upside target of approximately $150. This short-term pattern is reinforced by a much larger weekly cup-and-handle formation, which projects a measured-move target above the early 2024 high of $175, signaling a significant potential momentum shift. Supporting this bullish thesis, key weekly moving averages (13, 26, 40-week) have flipped from resistance to support, and the 14-week RSI has consistently held above the 50 midpoint, confirming strengthening momentum. As a key component of the XLE and XOP ETFs, a breakout in PSX could serve as a catalyst for the broader sector. The XLE is consolidating near its recent highs, poised for a momentum breakout above the high 90s, while the XOP is tracing a potential decade-long inverse head-and-shoulders pattern, which would suggest substantial upside if its neckline near $160 is breached.

Key Decisions for Investors

• Investors should closely monitor Phillips 66 (PSX) for a sustained breakout above the $135 price level, as this would technically confirm a bullish pattern with an initial price target of $150.
• A confirmed breakout in PSX could be used as a leading indicator to consider increasing exposure to the broader energy sector through ETFs like XLE and XOP, which are showing their own long-term constructive patterns.
• Traders should use the key weekly moving averages as a risk management guide; a failure by PSX to hold above these recently established support levels would challenge the bullish thesis.
• While the technical setup for PSX appears immediate, the corresponding patterns in the broader XLE and XOP ETFs are long-term in nature, requiring patience for the full thesis to potentially unfold.