FactSet An ugly breakdownThe charts tracking the energy sector could be described in just one word: Ugly. And there’s reason to believe it could still look a lot worse. The SPDR Energy Select Sector exchange traded fund XLE, +0.76% has entered a bear market, which many chart watchers define as a decline of 20% or more from a significant high, for the first time in three years. The ETF was down 0.4% at $79.55 in midday trade Wednesday, or 21% below the June 23 all-time closing high of $101.29. In the process, the ETF has fallen below a long-term bullish trendline that had defined the uptrend off the 2012 lows, suggesting a new downtrend has begun. In addition, the XLE’s 50-day moving average is on course to cross below the 200-day moving average, which started tilting lower last week, within a week’s time. That bearish technical event, known as a “death cross,” would be viewed by many as marking the spot where an intermediate-term decline transitions into a long-term selloff. While some feel the rapid selloff in the sector is exaggerated, and the XLE is overdue for a nice bounce, the risk of further weakness remains high. “When trends break, they can really break,” said Frank Cappelleri, a sales trader and technician at brokerage firm Instinet. “We’d rather not try to catch a falling knife.” The selloff in the sector comes as crude oil prices have been in free fall in recent weeks amid worries that a slowing global economy was sapping demand, coupled with concerns over increasing supply. On Wednesday, crude futures slipped further, hitting the lowest levels seen since June 2012 in intraday trading, after suffering the biggest one-day drop in two years on Tuesday. Bearish divergence Although the bear market came alive this week, when it closed below the 20% threshold of $81.03 on Monday, the sector started showing signs of breaking down a few months ago. As the above chart shows, the XLE began diverging from the broader market in July, when the high for that month was lower than its June high even though the S&P 500 SPX, -0.81% made a higher high. “In the first half of 2014, crude and the XLE were true leaders,” Cappelleri said. “Things changed in late June, and they haven’t been the same since.” Among key downside chart levels to watch, $73.62 marks the 61.8% retracement point of the rise off the last bear market’s closing low of $56.52 on Oct. 3, 2011 and the record high of $101.29. Technicians believe trends that retrace more than 61.8% -- mathematicians often refer to that as the golden, or Fibonacci ratio -- of the previous trend, will eventually retrace the whole trend. On the upside, technicians would point to previous support at the February 2014 lows just below $82. By TOMI KILGORE REPORTER