How Long Could an Energy Pullback Last?

My current outlook for the energy trade is a lite panic that delivers a surprisingly large drop over a few days or weeks and takes XLE below $50, with crude sliding back towards the $60s. What would trigger that? Probably something like a bad earnings season, a slide in the indexes to new lows with energy leading the way, followed by the Fed starting the taper in November and issuing a hawkish policy statement or public comments. Then energy might bottom out by mid-to-late November or early December. That would also benefit bulls by taking some steam out of the speculation.

If stocks go into a bear market and the economy into recession: back in the early 2000s XLE powered through it for months before joining in and reversing all its gains.

Here is SWN in the same timeframe:

I expect natural gas stocks will outpeform again. Whether that is relative or a total avoidance of a bear move, I cannot say. If natural gas stocks hit my support areas though, I will be looking to buy. For SWN specifically, a drop of another ~20 percent would leave it still in a strong uptrend and would be a roughly 30 percent correction off its recent high.

In a stagflation scenario, prices will keep rising. I don't expect that right now, but that is possible. That won't be evident in the data until early next year, around the time the supply chain issues should start normalizing. A short recession, similar to the Forgotten Depression of the early 1920s is also possible. Either way, if a slowdown is underway now the recovery would be around spring or summer 2021 and the market should figure it out sooner.

Other factors: China's economy, the U.S. dollar and interest rates. The level of interest rates didn't matter as much in the past, but over the past 5 years it has. Here is XLE divided by SPY, with the 10-year yield.

If I'm wrong, then I'm wrong. Rates and energy will go higher...and that's why I am constantly on the lookout for the next shorting opportunities in technology. If markets go up with inflation, tech stocks outside of BigTech will keep getting blasted. The best situation for tech would be a short and swift pullback in energy that eases rate and inflation pressure.