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CHART ANALYSIS


Transports Strong Relative To Oil Service

06/04/04 09:59:00 AM
by Arthur Hill

Despite the recent rise in oil prices over the last few months, the Dow Transports are surprisingly strong and the Oil Service HOLDRS are surprisingly weak.

Security:   WTIC, TRAN, OIH
Position:   N/A

The continuous futures contract for West Texas Intermediate Crude remains in a clear uptrend. WTIC has seen a steady advance since November and recently recorded a new reaction high.


Figure 1: WTIC daily chart.


Figure 2: Oil Service HOLDRS daily chart.

The Oil Service HOLDRS kept pace with WTIC from late November to early March (green trendline). However, OIH peaked in early March while WTIC went on to new highs. OIH formed a lower high in April and a lower low in May. During this time frame, WTIC broke resistance in early May and moved to new highs. OIH recently formed a small rising consolidation (magenta trendlines) and a move below the lower trendline (around 64.5) would signal a continuation lower.

Figure 3: Dow transports daily chart.
Graphic provided by: MetaStock.
 
The Dow Transports peaked in January with the broader market and fell around 10% by March (red trendline). While the S&P 500 moved below its March low, the Dow Transports held above their March low and are showing good relative strength (green trendline). More recently, the Dow Transports staged a most impressive advance and the average is challenging its April high (relative strength). Meanwhile, the S&P 500 and Oil Service HOLDRS remain well below their April highs (relative weakness).

Even though West Texas Intermediate Crude remains in a clear uptrend, it is also clear that the Dow Transports and Oil Service HOLDRS are on divergent paths. Perhaps these two "oil price-sensitive" groups are looking ahead. If so, relative strength in the Dow Transports and relative weakness in the Oil Service HOLDRS point to a decline in WTIC over the next few months.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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