ENERGY SECTOR SHOWS NEW MARKET LEADERSHIP -- ENERGY SPDR HITS NEW RECORD -- OIL SERVICE STOCKS ALSO SEE BIG GAINS -- HALLIBURTON AND SCHLUMBERGER ACHIEVE MAJOR BULLISH BREAKOUTS -- CRUDE OIL MAY BE FORMING BULLISH TRIANGLE
ENERGY IS WEEK'S STRONGEST SECTOR... Energy stocks had a very good week. In fact, they were the strongest part of the stock market. Chart 1 shows the Energy Sector SPDR (XLE) breaking out to a new record. Even more impressive is the big jump in the XLE/SPX ratio (solid line). Most of that jump in the relative strength line took place during the second half of March. Oil service stocks had an even better week. Chart 2 shows the Market Market Vectors Oil Services ETF (OIH) nearing a test of its November peak. Its relative strength ratio jumped even more than the one shown in Chart 1. Oil service stocks have actually been the strongest part of the energy patch. Since the start of the year, the OIH has risen 4.6% versus an XLE gain of 1.1%. Both exceeded the S&P 500 was is up .50%. In addition, most of the individual energy stock leaders this past week came from the oil service group. So that's where we'll concentrate our attention.
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Chart 1
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Chart 2
A LONGER LOOK AT OIL SERVICE ETF... The weekly bars in Chart 3 show the Market Vectors Oil Services ETF (OIH) heading toward a test of its 2011 peak. Last spring, the OIH rose above a major resistance line drawn over its 2008/2011 peaks. In addition, the OIH/SPX ratio (gray area) is just starting to turn up from a very low level. A number of individual stocks in the ETF have already achieved impressive upside breakouts
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Chart 3
HALLIBURTON AND SCHLUMBERGER ACHIEVE BULLISH BREAKOUTS... The two biggest stocks in the OIH also happen to be the strongest. Chart 4 shows Halliburton (HAL) hitting a new record high after exceeding its previous peak from 2011. Its relative strength ratio (gray area) hit a three-year high as well. Chart 5 shows Schlumberger (SLB) breaking through its 2011 peak to reach the highest level in six years. Its relative strength ratio is starting to rise as well.
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Chart 4
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Chart 5
OIL MAY BE READY TO RALLY... Given the close historical correlation between energy stocks and the commodity, I can't help but wonder if the new buying in energy stocks is hinting at a jump in the price of oil. In intermarket work, stocks tied to a certain commodity often lead turns in the commodity itself. The weekly bars in Chart 6 show the price of crude oil in a "triangular" formation which is marked by two converging trendines extending back to 2011. That is normally a continuation pattern. Since the prior trend between 2009 to 2011 was up, technical odds favor an eventual upside breakout. For that to happen, however, WTIC would have to clear the upper resistance line. Buying of energy shares may be related to tensions in the Ukraine. It may also be related to this week's jump in emerging market shares, and China in particular. Chinese weakness has been weighing on the prices of commodities like copper and oil. Any improvement in China would benefit both commodities. [The price of copper jumped this week]. The red bars below Chart 6 show China iShares (FXI) in a potential "triangle" over the last three years, and looks remarkably similar to the chart of crude oil.
