Oil Services Moving Higher, but Needs Confirmation of Higher Oil Prices
The decline in oil weighed on energy-related stocks over the six to eight weeks. The S&P 500 is trading near all-time highs, but the Oil & Gas Equip & Services SPDR and the Oil Service ETF (OIH) remain well below their July highs. The rebound in oil could translate into a bounce for XES and OIH. XES hit a new high in early July and then falling around 10%. The ETF managed to firm in the 50-62% retracement zone. This zone also marks support from the April and May lows. The new high in July indicates that the long-term trend is up and the retracement amount is normal for a correction within an uptrend. It is time to watch XES closely because the ETF is bouncing off this support zone the last two days.
On the oil inventory front, U.S. supplies of crude oil declined by 1.3 million barrels in the week ended Aug. 22, according to the American Petroleum Institute. The trade group also said supplies of distillates rose 2.4 million barrels, while supplies of gasoline declined 3.2 million barrels. The decline in gasoline was nearly matched by a rise in distillates and at this time of year, traders are now more focused on winter fuels than the demand for gasoline.
The OIH is poised to test resistance near the 50-day moving average at $55.65. A close above this level would lead to a test of the July highs at 58. Support is seen near the recent lows at 53. Momentum is positive with the MACD (moving average convergence divergence) index generating a buy signal on Monday. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The RSI is moving higher with price action reflecting accelerating positive momentum while printing at 54, which is the middle of the neutral range.
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