CRUDE OIL TESTS 200-DAY AVERAGE -- ENERGY STOCKS ARE ALSO TESTING LONG-TERM SUPPORT LINES
CRUDE IS STILL TESTING 200-DAY AVERAGE ... The last time I showed the chart of crude oil, it was testing major support at its 200-day moving average. That's still the case. Chart 1 (plotted through Monday) shows that crude is also testing the low hit in early May. Needless to say, this is an important test for the oil market. Energy stocks, which have been declining along with crude, are in an important test of their own.
Chart 1
ENERGY SPDR TESTS CHART SUPPORT... The Energy Sector SPDR (XLE) is also testing a couple of important support lines. One is shown by the green horizontal line drawn over the late November peak at $37.77. That's important because previous peaks are the first levels of support during a downside correction. In chart work, previous peaks usually become new support levels. The second support line is the (red) 200-day moving average which is just below the XLE. Notice also that the 9-day RSI line is in oversold territory near 30 and is showing a slight "positive divergence" from its mid-April low. That suggests that the energy group is due for at least a bounce. If the XLE is in a normal downside correction in an ongoing bull market (a view which I happen to lean toward), this is where it should start to find new buying.
Chart 2
OIL SERVICE HOLDERS TEST TRENDLINE SUPPORT... Chart 3 shows the Oil Service Holders (OIH) in an even more crucial test of support. The first is the 200-day moving average (red line). The chart shows that the OIH has traded over that long-term support line since the end of 2003 (red circle). That makes the current test an important one. Chart 2 also shows, however, that the OIH is testing a major up trendline (green line) starting in late 2003. That's also important. The indicator under the chart is a 200-day version of the Commodity Channel Index (CCI). Using that time span makes it helpful for spotting long-term support levels. Right now, the CCI is sitting on the 0 level, which coincided with market bottoms in the middle of 2004 (green arrows). All three lines suggest that this is a major test of the long-term uptrend in the oil service sector. Earlier in the year I had suggested that the energy stocks might present better buying opportunities near their 200-day averages. That view is also being tested. What crude oil and energy stocks do from here should have an important impact on the stock market and the economy.
Chart 3
