Investing.com -- Energy stocks found support last week after approaching oversold levels, reversing course and moving higher, according to Wolfe Research.

The sector's performance this week will be critical, with the ability to reclaim the 50-day moving average serving as a key indicator of whether the recent move represents temporary relief or a resumption of a longer-term uptrend.

Last Friday, over 80% of energy stocks hit one-month lows, signaling a near-term reset in the sector. Wolfe Research views this washout as potentially setting the stage for renewed momentum.

The firm expects the sector could see a 6% to 8% bounce, which would bring prices close to recent highs. Equipment and service names showed notable strength, according to the research.

Wolfe Research identified two bullish longer-term setups that could benefit from the current pullback levels.