Medium term
Trade view / 29 September 2016 at 7:54 GMT

Oil services stocks bust a move

Trader / TheSteadyTrader.com
United States
Background

Wednesday's big rally in the price of oil on the back of an Opec agreement to cut oil production had wide ranging consequences and among a broader risk-on rally also saw oil services stocks such as Schlumberger, Halliburton Company and Baker Hughes rally. The Oil Services stocks etf (OIH) looks poised for a rally continuation on the back of this.

When the price of oil moves then traders and investors sit up and take notice. The Oil Services stocks ETF (OIH) on Wednesday lifted nearly 6% on the back of this and left behind on the daily chart a notable technical bullish reversal.

On the multi-year weekly chart we see that the OIH etf after the initial rally off the January/February lows began to stall out in April and May and has thus been in consolidation mode ever since. This has allowed its yellow 50-week simple moving average to catch up with the price and at the margin hold as a support reference area. While Wednesday's rally in oil services stocks has not yet broken the OIH out of this consolidation phase to the upside, it is now nonetheless time to sit up and take notice.

Oil Services ETF (OIH)
Source: Saxo Bank

On the daily chart we see that Wednesday's nearly 6% pop in the OIH etf bounced it right off multi-month horizontal support and from a candlestick perspective followed Tuesday's Doji candle. In my eyes this is a bullish development for a trade and indeed my B2 Reversal indicator 

Oil Services ETF (OIH)
Source: Saxo Bank

Management and risk description

Given the volatility that can follow any Opec meetings and thus the risk of a reversal back lower in the price of oil and oil-related stocks, any long position in the OIH etf should likely be in reduced size.

Parameters

Entry: Buy the OIH etf or CFD thereof at $27.50 or higher

Stop: $27

Target: $29$29.50

Time horizon: 1–3 weeks 

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more

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