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May 11, 2005
Oil and Energy Stocks
A slowing economy translates into less demand for oil and this could be weighing on oil and Energy stocks. Oil could correct to the upper 40s and still hold its uptrend. In addition, I really wouldn’t consider a correction in oil bearish for Energy stocks as long as WTIC holds above 44. However, Wall Street has another opinion and a move to 44 in WTIC would mean more weakness in the Energy sector.
The Oil Service HOLDRS (OIH) formed a bullish harami (red caret) and the Energy SPDR (XLE) formed a hammer for Energy SPDR (XLE) last week. Both followed through on these candlestick reversals and have positive divergences in key momentum oscillators. However, Tuesday’s weakness showed just how frail these two groups are. In addition, Tuesday’s downside volume was above average in a number of Energy stocks. For OIH, RSI moved back below 50 and remains with lower highs for a downtrend. This is an RSI sell signal and further weakness below 90 would negate the candlestick reversal that formed last week.
Posted by Arthur B. Hill at May 11, 2005 04:34 PM