Oil Services Stocks Are on the Verge of a Breakout – Time to Buy?

Oil services stocks as represented by the OIH (roughly 1/3 of the OIH is comprised of two names, HAL and SLB) have been hot for the past month, gaining nearly 20% since the March 16th low:

 

OIH_6-month

This is the 3rd time since December that OIH is testing the $37 level, will the 3rd time be the charm? While the scarcity of volume-by-price between $37 and $41 and the open gaps from November offer a tantalizing incentive to get long, shrewd traders may want to first wait for a pullback for a few reasons:

  • Price is at the upper Bollinger band on the daily and above the upper Bollinger bands on shorter time frames (hourly, etc.)
  • While the RSI is not above 70 on the daily time frame, we can safely say that OIH is becoming overbought on shorter time frames
  • After nearly a 20% rally in less than a month some profit taking is to be expected at a previous level of resistance
  • Social sentiment as measured via Stock Twits has been in frothy territory for the last couple of weeks

OIH_SentimentWhile there is certainly the possibility of a clean breakout, here is what I deem to be the most likely scenario over the next few weeks:

OIH_Scenario

A multi-day pullback “bull flag” scenario could offer the perfect entry point for the nimble trader. Let’s see what happens over the coming days – we will update any new trades in OIH in the “trades” room at chat.ceo.ca.