The bears have continued taking hits since the January/February lows in the broader U.S. stock market, one after another. Last week it was biotechnology stocks showing strength, and on Tuesday, oil and oil-related stocks got a bump on the back of speculation about a possible production freeze.
The result: The Market Vectors Oil Services ETF (NYSEARCA:OIH) broke past some technical lines of resistance, and barring any immediate bearish reversal, OIH looks like it’s steering toward a defined next upside target.
To be clear, I have my doubts as to the possibility of an actual oil output freeze to be agreed upon this Sunday. However, as an active investor and trader, I will respect the price action for the time being until proven otherwise — if only for a trade.
Another reason to be somewhat optimistic of continuation buying in energy stocks in coming days is that we currently find ourselves in the middle of the monthly options expiration week for April. This Friday, equity options will expire, and the strong tendency for these options expiration weeks to be positive for stocks makes me looking fondly at the OIH for a long-side trade.
For some context, let’s first look at the longer-term picture of the OIH ETF, which holds stocks like Schlumberger Limited (NYSE:SLB) and Halliburton Company (NYSE:HAL).
Note that while the trend has been decidedly lower since oil and oil services stocks topped out in the summer of 2014, a real breakdown below multiyear support did not occur until last summer. After exhausting this swan dive, the OIH then began to bounce in January, and while overbought in the nearer-term, a possible upside target from this bigger picture view may well be the horizontal line (in other words, former support becomes resistance).
This price target resides around the $32 mark and would thus require a significant further squeeze from Tuesday’s closing levels just north of $27. Still, it’s worth keeping in mind.
On the daily chart, we see that after the OIH overcame its yellow 50-day moving average in early March, it successfully retested it last week.
Tuesday’s 3.5% rally managed to push the OIH back above diagonal resistance that stretches back to 2014, which now puts the red 200-day MA on the map as a next upside target. This moving average currently resides around $28.40 area, and if targeted, would mean another 5% or so of upside for active investors and traders to sink their teeth into.
As usual, with these types of breakout moves, any sharp bearish reversal of Tuesday’s rally would call off the trade until the charts reset.
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