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CHART ANALYSIS


Oil Services Not Impressed With Oil

08/10/04 10:43:28 AM
by Arthur Hill

While oil exceeded its March high with ease, the Oil Service HOLDRS (OIH) is having a little more trouble and meeting resistance from its March high.

Security:   OIH
Position:   N/A


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.



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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E-mail address: arthurh@tdtrader.com

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