|The way oil prices have moved around recently one would think it was pork bellies of days gone by! Or more recently the NDX, but 1998 - early 2000 is gone forever we're sad to say.|
|Back to the point, fundamental market uncertainty in the patch has driven oil prices all over the map. A recent drop to prices below $20 barrel for crude have seen gasoline and heating oil follow suit. Is it game over for "black gold" in the foreseeable future?|
|Figure 1: Weekly/Daily Charts - OSX Oil Services Index|
|Graphic provided by: Quote.com.|
|Graphic provided by: QCharts.|
|From this summer until now, Oil Services Index prices have been coiling themselves into a wedge. Which way it breaks remains anyone's guess, but a consolidation near recent lows can indeed be expected to continue the downtrend from here. Stochastic values are stuck right between oversold/overbought extremes and offer little guidance right now.|
Daily chart stochastic values are within overbought extreme and look rather weak at that. With price action two-thirds within the total wedge pattern formed, a break either way is imminent. We could consider going long or short underlying options (Jan 85 calls: OSX-AQ & Jan 75 puts: OSX-MO) on a break of the wedge either way.
Schlumberger is also a main component of this index and would be an excellent proxy to game with shares or underlying options as well.
Figure 2: Weekly/Daily Charts - XOI CBOE Oil Index
Graphics courtesy of Qcharts @quote.com
We see a similar, unclear pattern in oil stocks index as well. Wedges here are getting close to breaking and stochastic values remain bullish for now but incongruous across both time frames. A mutual alignment in one extreme or the other as price action nears one side of these wedges gives us a better than average guess on which direction lies next. That's the watch we're currently on.
|Make no mistake: oil prices will soon flow strongly one way or the other. Opportunity to profit in stocks, equity or index options and/or futures contracts is setting up and the spigot will open when chart patterns break!|
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