Last Friday, stocks staged a powerful comeback after an initial weak reaction to the September jobs report, which came in below expectations. While the entire market rose on Friday, some of the most notable rallies occurred in parts of the market that saw the most pain over the past three to 15 months.
To wit, energy-related stocks such as oil services stocks — as represented by the Market Vectors Oil Services ETF (NYSEARCA:OIH) — surged 5.5%, which through the lens of technical analysis not only increases the odds of seeing some further strength in coming days/weeks, but also gives active investors a well-defined area of support below to lean against.
While the bullish reversal in the broader market and in the OIH ETF last Friday was powerful, it is important to keep in mind that one day does not change or make a trend — but it is vital to at least take notice of and may well be worth a trade.
As oil prices have tanked and the dollar has surged over the past 15 months or so, most energy-related stocks such as Schlumberger Limited (NYSE:SLB) got clobbered. Friday’s rally did not change the downtrend for either the OIH ETF or SLB, but lest we forget, some of the sharpest rallies tend to occur in downtrending markets.
OIH ETF Charts
Let’s start off with a multiyear weekly view of the OIH.
We can see that over the past 15 months, the OIH has formed a big falling wedge pattern (black lines) that ultimately stands a decent chance of resolving higher. Also note that the OIH has flagged positive divergence between price and momentum all year long, as prices made lower lows but the RSI oscillator at the bottom of the chart bottomed in late 2014.
Clearly this is no immediate-term catalyst to buy, but it does add credence to the notion that a longer-term bottoming phase may be underway.
On the daily chart, we see that last Friday’s 5%-plus rally in the OIH ETF came on a higher low as compared to the August lows. Also note that the OIH at the open on Friday pierced below its five-day trading range only to rally back strongly, fully engulfing the last five trading days, thus marking the day with a strong bullish reversal candle.
In the immediate term, the OIH ETF might now be a tad overbought. But if the $27.80-$27.90 area can hold as support, additional buying pressure in coming days/weeks could lift this fund back closer to the $30 area and thus toward the upper end of its multiweek trading range.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
