Checking the Oil

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.

Some strength in the list

I won't go through them all, but we do have some strong ones in our midst.

The $SOX index has been struggling a bit lately. It broke both diagonal and short term horizontal support and has been drifting since. It's still above the 200 MA, though, and hanging onto the 50. So I'm not counting it out yet, but it's looking kinda ugly.


In contrast, however, our own VSEA has been very impressive. We're all so proud! Breakout on big volume. The news isn't obvious to me as to why, but the volume doesn't lie. It's a bit extended right now for an entry, but it's definitely one to watch for an entry point, particularly if the SOX and the Nasdaq get their act together. I wrote about the Semis in this post. Don't forget about the increased money for buy backs.



CRDN broke above a bull flag pattern I mentioned in Scrolling Through the List. I think it is probably debatable where to draw the flag pole, but the theory is that once the Flag (The area of consolidation between two lines) is broken to the upside, the stock should continue the distance equal to the height of the pole. Since late November showed consolidation after a big move up off the 41 area, it was a bit of a flag pattern too. I'll place the pole of the most recent flag from the low of Nov. 30 at 51.78. The high of Dec. 5 is 57.15. In round figures, the height of the pole is $5. Taken from the place where the flag was broken, about 55.80, the target would be 60.80. I almost took this trade on Tuesday, but chickened out because I don't trust the low volume in the market during this holiday season and the volume on this one was very low on the bullish candle. Regardless, resistance is at 62.50



Looking at it more closely, I think the move off 41 in November could be seen as a flag pattern with a pole that is about 13 pts. long. It was a big move on earnings and kicked off with major volume. From the breakout on 12/05 above 54, the target would be 67. The breakout was on more than 150% average volume and the subsequent pullback and successful test of new support was on average volume, a bullish sign.
It may seem a lofty target, 67. But looking at the 5 year chart, it doesn't look so absurd. They just announced a follow up order from the Army for 133 million bucks, the largest single order it has ever received. The PEG on the stock is under 1. The 67 area just may be in the cards.



With a positive New Homes Sales report out, the Housing sector looked strong today. KBH looks to be ready to move higher. There are many resistance points along the way, so an options trade will be trickier. Profit targets would be good. Otherwise, a stock position would be ideal.


Crude oil has been week in recent days.


Yet the $OIX confirmed a bullish Harmai pattern today by closing higher than the two day pattern.



Our UNT did form a bullish engulfing pattern today at support, but I'm not in love with the technical picture on the chart and I'm sure there are other oil stocks out there that are stronger.

Like the OIX, the Oil Services Index shows some good bounce potential with a bullish engulfing pattern right at the 50 and 200 MAs for support. The index is just below the support line I'd have liked to see hold, as well as the 200 MA, but it's not yet a convincing break.



From that sector, our very own BHI looks very promising. The harami formation today needs a higher close tomorrow for confirmation. The stock is poised on horizontal support and the 200 MA with the 20 rising through it. Very bullish potential. Low risk entry here with upside to the order of 7 or even 12 points.
Remember that this one trades at a discount to its group and has a PEG of about .50. Very low. Very good.


That's all for now.