ENERGY STOCKS DROP WITH OIL -- OIL SERVICE INDEX UP AGAINST LONG-TERM RESISTANCE
CRUDE DROPS HEAVILY... A big buildup in crude oil inventories has pushed the key commodity down by $1.85 in afternoon trading. Chart 1 shows crude slipping back under its 50-day moving average. It's still above its mid-April low, however, at $51. The drop in crude is causing selling in energy shares.
Chart 1
ENERGY ETFS ARE STILL BENEATH 50-DAY LINES ... Charts 2 and 3 show the Energy Sector SPDR (XLE) and Oil Service Holders (OIH) still in the downside correction that started in early March. Both are trading well above their 200-day moving averages, but below their 50-day lines (which is usually a signal to take some profits). Their volume patterns reveal a negative bias. In both cases, downside volume (red bars) has been heavier than upside volume (green bars). To improve their chart picture, one of two things needs to happen. One is for them to drop closer to their 200-day averages where major support is likely. The other is for either (or both) of the energy ETFs to close decisively back over their 50-day lines and, preferably, in new high ground. That's especially true of the oil service group.
Chart 2
Chart 3
OIL SERVICE INDEX UP AGAINST LONG-TERM SUPPLY ... The monthly bars for the Oil Service Index (OSX) show one of the reasons why the energy patch is running into selling. The climb in the OSX to just above the 140 level has put it up against long-term supply formed in 2000 and 1998. That's a logical spot to expect some profit-taking in this over-extended group. In my view, however, the long-term pattern still looks positive. Technical odds still favor an eventual move into record highs. But the oil service group appears to need more of a correction (or consolidation) before that can happen.
Chart 4
