SOME RECENT OIL SERVICE BREAKOUTS INCLUDE BAKER HUGHES, SCHLUMBERGER, AND RIG

OIL SERVICE INDEX HITS THREE-YEAR HIGH ... I recently suggested that although I thought the energy sector was over-extended on a short to intermediate term basis (and I still do), oil service stocks appear to offer the best value in the group. Chart 1 shows why. The last monthly bar in Chart 1 shows that the Oil Service Index (OSX) has just broken above its 2002 peak, which puts it at a new three-year high. In addition, its monthly RSI line hasn't reached overbought territory over 70. By contrast, the AMEX Oil Index (XOI) and the Natural Gas Index are already in overbought territory. There are several large stocks in the group that also still look relatively cheap on a long-term basis.

Chart 1

BAKER HUGHES BREAKS RESISTANCE LINE... This is the reason I like to look at long-term monthly charts. They put things in much better perspective. The monthly chart of BHI shows it trading in a huge "symmetrical triangle" since late 1997. More importantly, it's just broken through the upper resistance line. That bullish pattern suggests an eventual test of its 1997 at the very least and, more likely, an eventual new high.

Chart 2

SCHLUMBERGER HITS THREE-YEAR HIGH ... On its daily chart, Schlumberger has just hit a new 52-week high and may look a little over-extended. On its monthly chart, however, the oil service stock still looks relatively cheap. It's barely regained half of its 1997-2002 losses. And its monthly RSI line hasn't reached overbought territory.

Chart 3

Chart 4

TRANSOCEAN (RIG) OVERBOUGHT, BUT STILL CHEAP ... Here's another example of why it's important to keep short-term trends in a long-term perspective. Transocean is hitting a new 52-week high after recently breaking through its spring high at 32. Its daily RSI line shows it to be in overbought territory over 70. That may be a good reason not to buy the stock at today's levels. But it's not a good reason to ignore the stock because it looks "high" on its daily chart. The monthly bars in Chart 6 show why. RIG has retraced just a third of its major downtrend that started in 2000. It's also been a relative laggard in the oil service group. That means it may have some catching up to do. If the stock does undergo a short-term correction, a better buying opportunity may present itself near its March peak around 32. I'm not suggesting that oil service stocks should be bought at today's overbought levels. I am suggesting, however, that any short-term setbacks -- or consolidations -- should be used to do some accumulating. As I said before, I believe this group offers the best value in the oil patch. And I believe energy should be part of everyone's portfolio. That can be done via energy mutual funds, energy ETFs, or energy stocks.

Chart 5

Chart 6