OIL SERVICE STOCKS LEAD STRONG ENERGY COMPLEX TO 52-WEEK HIGHS -- CHEVRON BREAKS OUT -- CRUDE OIL AND NATURAL GAS ARE TESTING IMPORTANT RESISTANCE LINES AND APPEAR TO BE HEADED HIGHER

OIL SERVICE BREAKOUTS ... With energy prices on the rise, stocks in the energy patch have become market leaders. That's certainly the case today. While energy is the day's top sector, oil service is the top energy industry group. Chart 1 shows Oil Service Holders rising to a new 52-week high after recently breaking through its June high. Its relative strength ratio (below chart) shows new upside leadership in the group since the start of September. That's largely due to rising energy prices. Notice that the group's relative strength line closely matches the trend of crude oil. Two of today's top energy gainers are from that group -- namely, Rowan Companies and Nabors Industries. Charts 2 and 3 show both oil service stocks hitting new 52-week highs with rising relative strength lines. Peabody Energy (a coal stock I showed last week) is also hitting a 52-week high. The energy sector is finally getting some help from Chevron, which is one of its biggest stocks.

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CHEVRON FINALLY SHOWS SOME LEADERSHIP... Chart 4 shows the Energy Sector SPDR (XLE) on the verge of the highest close in a year as well. Its relative strength line (below chart) shows that the energy sector had been a market laggard from mid-June through September. A bottom in natural gas prices (bottom line) at the start of September and an upturn in crude oil during October helped push the XLE:SPX ratio to a four-month high. Two of the biggest drags on the XLE have been the weak performance of its two biggest stocks -- Chevron and Exxon Mobil. Chart 5, however, shows Chevron hitting a new nine-month high today. Its falling relative strength line (solid line) shows just how weak its relative performance has been. The fact that the stock is finally starting to show some bounce is a good sign for it and the energy group. Chart 6 shows Exxon Mobil (the biggest stock in the XLE) still caught in a trading range but trying to climb over its 200-day moving average. A lot of the buying of energy shares is predicated on the likelihood of rising energy prices. Chart patterns in those commodities appear to support that optimistic view.

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CRUDE NEARS TOP OF TRIANGLE PATTERN ... We've shown this pattern before, but it's worth another look. Chart 7 shows a bullish "symmetrical triangle" forming in the Oil ETF (USO) since June. The USO gapped higher today and is now challenging its upper resistance line. An eventual upside breakout is likely. Chart 8 shows the Natural Gas ETF (UNG) also testing an important resistance line. In my view, an upside breakout is likely there as well. Needless to say, higher energy prices would be bullish for energy shares.

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