Figure 1: Daily chart of WTIC.
First, the daily chart for West Texas Intermediate Crude (WTIC) shows a clear and present uptrend. Higher lows are followed by higher highs and the trendline extending down from Sep-03 has yet to be challenged. The upper trendline was drawn parallel to this trendline and shows an approaching resistance area around 46. WTIC was turned back at this upper and parallel trendline in May (red oval). As with June, any decline from current levels would be viewed as a correction within an ongoing uptrend.
|Turning to the Oil Service HOLDRS (OIH), the stock gapped up in June and met resistance around 75 in mid-July. This resistance area extends back to the March high. The stock failed to hold above 75 in July and again in August. A small triangle formed (magenta trendlines) and the stock broke below the lower trendline with a sharp decline. This is quite negative, but it would take a move below support at 68.5 to start turning bearish. This level is confirmed by broken resistance (turned support) from the late May high, the June gap, and the Sep-03 trendline.|
|Figure 2: Daily chart of OIH.|
|Graphic provided by: MetaStock.|
|OIH performs best when it outperforms WTIC. The green vertical lines show when OIH started outperforming WTIC and the red show when OIH started underperforming WTIC. OIH advanced from late November to early March, a period of outperformance. OIH declined from early March to mid-May, a period of underperformance. OIH advanced from mid May to mid-July, a period of outperforming. Most recently, OIH has been underperforming and this points to lower prices ahead for the stock and possibly even oil.|
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