Trade of the Day: The Contrarian’s Guide to Playing Oil (OIH)

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Market Vectors Oil Services ETF (OIH) — Just the mention of oil and oil-related stocks is enough to have investors tuning out these days. With the renewed slide in crude, which is down about 30% since mid-June, sentiment has gotten exceedingly negative again. For the contrarian, this begs the question, when is it time to buy an ETF like OIH for an oversold bounce?

The market’s major focus all year has been the timing of an interest rate hike by the Federal Reserve. Currently, the consensus is for a rate increase in September, which many fear will cause a widespread sell-off in stocks. But the consensus is rarely right about the market, which is why the contrarian in me thinks a September rate hike could result in the following scenario: stocks up, U.S. dollar down and commodities up. And while I doubt this will be the definite bottom for oil and oil-related stocks, it could lead to a powerful bounce.

Looking at the weekly chart of OIH, we see the ETF recently found its big picture support line. While momentum, per the RSI indicator shown at the bottom of the chart, made a low in December, OIH continued to drop, resulting in a significant positive divergence between momentum and price. While this alone is not a reason to buy an asset, it is something to be aware of and watch out for further confirmation of this potential bullish signal.

OIH Weekly Chart
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On the daily chart below, we see OIH recently undercut its January and March lows, but that downside momentum also appears to be fading. If we get a September rate hike and an easing off in the dollar, I see OIH moving back into the high $30s in fairly short order.

OIH Daily Chart
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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/market-vectors-oil-services-etf-oih-trade-of-the-day-2/.

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