Keep An Eye On OIH, The Oil Services ETF

The Energy sector was the best performing sector starting from June when the S&P 500 printed the interim low.


The Energy SPDR outperformed the S&P 500 by 4.52% since June 1. The trend reversal in this sector was confirmed by the broad spectrum of energy stocks participating in this rally.

The Bullish Percent Index (BPI) of the Energy sector in my Sector Breadth Model (SBM) jumped from 22% on June 1 (the worst reading among nine market sectors on that time) to 50% on July 20. It means that a half of 272 energy stocks included in the SBM generated a buy signal on their P&F charts. By the way, the Energy sector was the only sector climbing higher in the SBM on Friday (green arrow) with more energy stocks issuing a buy signal.

If we dig dipper and take a look at industries within the Energy sector, two highest BPI readings are 65% and 56% in the Pipelines (38 stocks in the SBM) and the Oil Equipment & Services (64 stocks in the SBM) respectively.

Of particular interest is a pattern unfolding in the Oil Services ETF (OIH), if we take into account the underlying strength in the Oil Equipment & Services industry. I see this pattern as a Complex Inverse Head-And-Shoulders formation with two heads unfolding since May on the daily chart.

The recent break through the neckline established the price objective in the 42 area measured as the distance between the peak of the head and the neckline added to the point of the breakout. The upper indicator window shows the OIH:XLE ratio trending higher since late June, which means OIH outperformed XLE over the last month.

MACD and RSI are in bullish mode and heading higher. It's worth noting though that the last two trading days produced two doji candlesticks signaling that the upward momentum is waning and some retracement/consolidation on the short-term basis is likely.


On the short-term P&F chart an interim fulcrum bottom (green) is formed and confirmed by the short-term downtrend reversal simultaneously with issuing a new buy signal. The vertical count from the June low points to 45 as the price objective.


On the intermediate-term P&F chart OIH is still in a downtrend with the Bearish Resistance line in the 44 area currently and strong resistance levels at 41, 44 and 45. All these resistance levels may stall the ongoing rally in OIH.

Disclaimer: I express only my personal opinion on the market and do not provide any trading or financial advice (see Disclaimer on my site).