Oil and Some Oil Stocks Starting to Run

By Cory Mitchell | Updated September 02, 2014 AAA

Light Sweet Crude (May) is nearing the March high at $105.22 and has been in an up trend in 2014. In 2003 both stocks and oil began an ascent. Oil continued to move higher into 2008, while the S&P 500 peaked in 2007. In 2009 oil initially moved higher along with the stock market. As the stock market continues to rise oil has been moving predominantly sideways for the last three years. A similar scenario occurred in 2005 into 2007 where the stock market was making higher highs and high lows, but oil wasn't. If history repeats, oil could have some catching up to do. Oil isn't close to a major upside breakout yet, but if some short-term levels are broken it will move us that much closer to the possibility. In the mean time, some major oil stocks have been screaming higher, and offering investors and short-term traders excellent opportunities.

United States Oil (ARCA:USO) reflects the price action of oil, and is approaching the March high at $37.74. The price is currently showing some hesitancy in the area, marked by several days in a row with long upper tails. If the price proceeds above $37.74 it will keep the uptrend alive. The major hurdle the ETF needs to break through is $39.54, the 2013 high. If that occurs it is very likely a major leg higher could begin. On the other hand, if we drop back below the trendline near $36.50, the short-term and longer term range will continue...at least for now. A drop below $35 signals a move back toward 2014 lows near $33.

United States Oil (ARCA:USO) reflects the price action of oil, and is approaching the March high at $37.74.

Encana (NYSE:ECA), the Canadian integrated oil and gas company, has been very strong in 2014. From a low $17.17 in January the stock hit $23.06 on April 15, a gain of 34%. The stock finished well off that high, closing at $22.33, indicating the stock is a bit overextended in the short-term. Minor support is at $22.25. If broken, traders can watch for pullbacks to the trendlines near $21.75 and $20.75. The stock has experienced strong resistance above $23 (the 2013 high was $24.29) over the last two years, so if the price can break through the area it's a bullish sign, and the stock could continue to trend above $30.

Encana (NYSE:ECA), the Canadian integrated oil and gas company, has been very strong in 2014.

Spectra Energy (NYSE:SE) has been in an uptrend since 2009 and continues to put in higher lows as it bounces off trendline support. The long-term trendline going back to 2009 intersects near $33.00, and while a ways a way at the moment could provide buying opportunities on a longer-term pullback. Another trendline provides support near $35.60 and the trendline for 2014 intersects near $37.25. April 15 saw a strong surge higher, so it may be some time before we get a pullback to these areas, but the stock continues to move well so it should be kept on the radar.

Spectra Energy (NYSE:SE) been in an uptrend since 2009 and continues to put in higher lows as it bounces of trendline support.

Schlumberger (NYSE:SLB) cleared major resistance at $96 recently, as the price was able surpass the 2011 highs. The stock now looks poised to test the 2008 high at $111.95 and the 2007 high at $114.48. Strong intra-day movement and the long-term potential--especially if oil also starts making a move to break higher--will appeal to short-term and longer-term traders alike. Look for a pop and continuation above the $100 level, buying on pullbacks. If the price drops back below $96.50 a deeper correction is underway and next buy area occurs between $89 and $92. The longer-term targets are near the 2008 and 2007 highs. 

Schlumberger (NYSE:SLB) cleared major resistance at $96 recently, as the price was able surpass the 2011 highs.

Other oil related stocks that currently look strong include Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL)

The Bottom Line

Whether oil breaks higher and catches up the stock market is yet to be seen. If history repeats, it will, which could bolster these oil stocks even more. Even without that, these three oil stocks are trending strongly. Patient entries are still required though, so wait for a major breakout or a pullback to support before entering. Always control risk with a stop loss, as even strong trends eventually turn.

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