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KEG, IEZ Displaying Conflicting Signals

11/24/08 08:53:47 AM
by Donald W. Pendergast, Jr.

Fakeout or breakout? Even though the broad market is crumbling (again), at least one stock in the Oil Services industry group along with its parent exchange traded fund (ETF), IEZ, are suggesting that a bottom may be reached sooner rather than later for the industry group.

Security:   IEZ, KEG
Position:   Hold

The broad market is at it again, giving a few signs of hope here and there, only to have it all swept aside as another tidal wave of selling overwhelmed everything in sight. However, there are at least a few hopeful clues hidden deep beneath the obvious wreckage and ruin of the broad market wastelands.

FIGURE 1: IEZ, WEEKLY. A mildly bullish price-momentum divergence and a possible ending diagonal formation.
Graphic provided by: Ensign Windows.
First, a look at IEZ, the weekly chart for the Dow Jones US Oil & Equipment Services Index Fund (Figure 1). Down about 70% since the market slide began last summer, the fund looks at first glance as though more selling could be in store, but the detrend oscillator shows a minor positive price-momentum divergence, and the fuzzy outline of an ending diagonal triangle could also be in its formative stages.

FIGURE 2: KEG, DAILY. Another diagonal pattern combined with very strong bullish price-momentum divergence.
Graphic provided by: Ensign Windows.
Figure 2, the daily chart of Key Energy Services (KEG), which is closely correlated (0.97 correlation for the past 12 months) to IEZ, is slightly more positive than the Oil Services industry group, featuring an even more well-developed diagonal formation and a very bullish price-momentum divergence pattern. KEG also boasts a forward price/earnings ratio of only 3.14 and also sports an annual estimated earnings per share of 1.36, so perhaps the bottom-fishers of the stockpicking world have temporarily overlooked this Houston-based energy services outfit.

When the fear factor is at its worst, aggressive traders and investors who maintain their composure can occasionally find a gem or two buried in the muck of market landslides. With option volatility at record levels, both IEZ and KEG could be interesting put-selling opportunities for those who are long-term bullish on the Oil Services industry group, but for most normal traders and investors, waiting for the broad market to finally bottom and reverse might be the safest play right now before betting on any group or sector rebounds. For those already long IEZ or KEG, I rate these two equities as a hold.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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Date: 11/25/08Rank: 4Comment: 

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