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Checking the Oil

February 3, 2007
tags: , , ,

For starters, I want to take a look at Oil. The oil industry groups are ranking on the very bottom of the Big Chart. If they start to make a comeback to market leading status, we want to be jump on the ride early on.

Oil has been moving downward ever since mid summer when the recent stock market rally began. This chart for Weekly crude shows a clear downtrend with lower lows and a lower high. The past two weeks have shown a strong bounce in Crude which we should pay attention to. The general belief, correct or not, is that if oil goes up the market goes down.
There is a Bullish divergence between the lower lows in the price of oil and higher lows in the MACD. The rally the last two weeks has been pretty impressive with this week’s candle being bigger than most. But it is far from out of the woods. Even if it does break above the 60 area, with the 40 Moving Average (in this case the 40 week MA, equivalent to the 200 day MA) rolling over, it seems like getting past 65 will be a major feat for crude.

In turn the oil services index is looking pretty non-commital with a generally sideways chart for the year and it is approaching the underside of the 50 and 200 MA, likely points of resistance. It’s got a short term uptrend in place, but in the intermediate to long term it is hard to put a finger on much more than wandering sideways action. With the MACD and Stochastics high, it’s hard to get excited about jumping into this group. Our BHI looks very similar.

But it’s interesting to look at the index for integrated oil companies. There is the same short term uptrend, but the longer term is also more clearly in a healthy uptrend and the current price is above all the 20, 200, and as of a few days ago, the 50 MA. (As a side note, there are two oil indexes, $OIX and $XOI. I can’t quite figure out if there’s a really signficant reason to use one over the other, but it doesn’t seem to make much of a difference. Click on the links to see their components. Mostly the same.) Remember, to play this index as an ETF, the closest thing is the XLE.

I did a Global Search of the entire Energy sector with the only requirements being a minimum F/E score of 3.25 and minimum price pattern score of 2.5. Amazingly enough, only 20 stocks showed up. Our UNT was one of them. It’s showing a weaker Estimates score than ideal, but the underlying numbers are still attractive even if with a few black marks.
The chart is still not quite screaming for a buy, but it looks like it is moving toward taking out some of the first obstacles. First up is the long term downtrending resistance line. Though this longer term resitance line is somewhat daunting, we do have a short term uptrend in play and have put in a higher low on the intermediate time frame. It has just broken above the 50 MA and will likely find resistance at the 200. As it breaks the downtrend line and struggles with the 200, the 50 may well come provide it with support in the coming weeks or months to begin the building of a new intermediate term uptrend. Notice how the volume on the more recent selloffs hasn’t been terribly high(I’m dismissing Jan 3 as new year’s craziness) while the volume has been ramping up somewhat in the strength of this last week. Sentiment on this one may well be shifting.
Keep on eye out.

More on our list soon.

One Comment leave one →
  1. Jim permalink
    February 4, 2007 9:52 am

    Only the TV heads think when oil goes up, the market goes down. A 4 year chart of $SPX, $WTIC and even $TRAN prove that investors know otherwise.

    When oil goes up, the market goes up, when oil goes down the market goes up even more.

    There can only be one reason why all theortically inversely correlated assets classes have spent this decade rocketing higher together… inflation. Enjoy it now because it will get us all in the end.

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