Oil and gas along with their equities have been underperforming for the most part of 2012 and they are still under heavy selling pressure.
I watch the oil futures chart very closely for price and volume action, and the one thing that is clear for oil is that big sellers are still unloading copious amounts of contracts; this is keeping the price from moving higher. Oil is trading in a very large range and is trending its way back down the lower reversal zone currently. Once price reverses back up and starts heading toward the $100 and $105 levels it will trigger strong buying across the entire energy sector.
Crude Oil, Energy and Utility Sector Chart – Weekly Time Frame
The chart below shows the light crude oil price along with the energy and utilities sectors. The patterns on the chart are clearly pointing to higher prices but the price of oil must show signs of strength before that will happen. Once Energy Select Sector SPDR ETF
(NYSEARCA:XLE) and Utilities SPDR ETF
(NYSEARCA:XLU) prices break above their upper resistance levels (blue dotted line) they should take off and provide double-digit returns.
Looking at the XLU utilities sector above I am sure you noticed the steady rise in the price the last couple of years. This was a result of the low interest rates in bond price and a shift from investors looking for higher yields for their money. Utility stocks carry below-average risk in the world of equities and pay out a steady and healthy dividend year after year. So this is where long-term investment capital has/is being parked for the time being.
Utility Stock Sector – Deeper Look – 2-Hour Candle Chart Time Frame
Last week I covered utility stocks in detail showing you the Stage 1 – Accumulation base which they had formed. The chart below shows the recent price action on the 2-hour candle chart and recent run up.
Oil and Gas Services – Daily Time Frame
This chart shows a very bullish picture for the services (SPDR S&P Oil & Gas Equipment & Services ETF
(NYSEARCA:XES)) along with its relative strength to oil (United States Oil Fund ETF
(NYSEARCA:USO)) at the bottom. While the sector looks a little overbought here on the short term chart, overall it’s pointing to much higher prices.
Energy Sector Conclusion
In short, crude oil looks to be trading in a very
large range without any sign a breakout above or below its channel lines for several months at the minimum. But if the lower channel line is reached and oil starts to trend up, then these energy-related sector ETFs should post some very large gains and should not be ignored.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
No positions in stocks mentioned.
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