Working Money magazine.  The investors' magazine.
Traders.com Advantage

INDICATORS LIST


LIST OF TOPICS





Article Archive | Search | Subscribe/Renew | Login | Free Trial | Forgot ID?


PRINT THIS ARTICLE

STOCHASTICS


Divergences Drive OIH Up

11/23/04 01:39:50 PM
by David Penn

A running positive divergence propels oil service HOLDRS to new highs.

Security:   OIH
Position:   N/A

If you've been reading Traders.com Advantage in November, you've been treated to a number of insightful articles on the technical analysis of various oil industry stocks (see any number of articles by Kevin Hopson, most recently "Range Resources At Key Inflection Point," Traders.com Advantage, November 18, 2004; RRC is enjoying a 9% breakout day as I write). Here I want to take a quick look at the current move up in oil service stocks in general, and an even closer look at the tools that traders could have used to anticipate it.

So often, traders see a perfect setup after the fact and fret that they will never see such an ideal situation again. I confess that's a bit how I felt in missing the Bush bounce in late October, one that was telegraphed by a double or running positive stochastic divergence, among other factors (see my "Divergences And The Bush Bounce," Traders.com Advantage, November 9, 2004). But markets are made of people, and while people come in seemingly infinite varieties, there are types and patterns of behavior, and those types and patterns repeat themselves -- and no less infinitely so.

Figure 1: Oil Service HOLDRs. Two sets of positive divergences between the October and November lows in the intermediate term and between the early November and late November lows in the shorter-term anticipate a move higher in OIH. Note the support provided by the 50-day exponential moving average during the decline from the early October highs to the mid-November lows, as well as the potential for moving average support in the form of the 10-day exponential moving average during the breakout.
Graphic provided by: Prophet Financial, Inc.
 
What appears to have repeated itself is the same stochastic pattern that set up the Bush bounce in stocks in late October. Recall that the bounce consisted of a month-to-month positive stochastic divergence (September lows to October lows), which grew into an intramonth positive stochastic divergence (early October lows to late October lows). Here, we have the same sort of pattern in the OIH: a month-to-month positive stochastic divergence (October lows to November lows) and an intramonth positive stochastic divergence (early November lows to mid-November lows). So far, the results are the same: a sudden, powerful move higher.



David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

Title: Technical Writer
Company: Technical Analysis, Inc.
Address: 4757 California Avenue SW
Seattle, WA 98116
Phone # for sales: 206 938 0570
Fax: 206 938 1307
Website: www.Traders.com
E-mail address: DPenn@traders.com

Traders' Resource Links
Charting the Stock Market: The Wyckoff Method -- Books
Working-Money.com -- Online Trading Services
Traders.com Advantage -- Online Trading Services
Technical Analysis of Stocks & Commodities -- Publications and Newsletters
Working Money, at Working-Money.com -- Publications and Newsletters
Traders.com Advantage -- Publications and Newsletters
Professional Traders Starter Kit -- Software

Click here for more information about our publications!


Comments or Questions? Article Usefulness
5 (most useful)
4
3
2
1 (least useful)

Comments

Date:11/24/04Rank:3Comment:
PRINT THIS ARTICLE





S&C Subscription/Renewal




Request Information From Our Sponsors 

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

PTSK — The Professional Traders' Starter Kit
Home — S&C Magazine | Working Money Magazine | Traders.com Advantage | Online Store | Traders’ Resource
Add a Product to Traders’ Resource | Message Boards | Subscribe/Renew | Free Trial Issue | Article Code | Search

Copyright © 1982–2019 Technical Analysis, Inc. All rights reserved. Read our disclaimer & privacy statement.