Oil Service stocks have been quietly showing relative strength, and the recent buyout of Petrohawk Energy Corporation Co (NYSE:HK) may be giving this group a shot in the arm. Often when there is a buyout, it will fuel more speculation in its sector as investors try to position themselves for another possible acquisition. It's interesting that this group has been performing well, despite the fact that Oil has basically gone nowhere after a sharp pullback in May. If crude gains any strength, it would be another possible catalyst for this group.

TUTORIAL: Commodity Investing 101

The Service stocks as a whole are also showing an interesting pattern. The group as represented by the Merrill Lynch & Co., Inc. Oil Service HOLDRs (AMEX:OIH) ETF is rebounding after what appeared to be a breakdown in June. OIH had fallen under a consolidation in May on increased volume and after a failure to bounce near $155, headed even lower. However, it bounced sharply after the false breakdown, and appears to be completing a reverse Head and Shoulder's pattern. The neckline is the prior resistance area near $155 which is starting to get breached. If OIH can hold above this level, it would likely trap a group of bears and act as a floor for the near future. (For more, see How To Trade the Head And Shoulders Pattern.)

One stock in this sector that has been showing good strength is Carrizo Oil & Gas, Inc. (NasdaqGS:CRZO). CRZO had been working on a base all year before finally clearing it in June. There are no signs of the market correction in this stock as it continued to set higher lows over the past several months. It is now pulling back for a retest of the breakout area and appears to have attracted buyers at this level. Traders should watch to see if CRZO can hold above its prior base.


Stone Energy Corporation Common
(NYSE:SGY) is another stock in the Oil Service sector that is worth monitoring. While it hasn't cleared its base, it has cleared some resistance levels and appears to be headed for at least a retest of its 52-week highs near $36. It held critical support near $28 on several occasions without breaking and this would be the key level for traders to focus on as a line in the sand. (For related reading, see Mastering Short-Term Trading.)

A smaller stock in this group that could be headed higher is Callon Petroleum Company Common (NYSE:CPE). CPE had been correcting in a wedge since surging to a high just above $9 in February. It shed about 30% of its price in a few months before, finally turning sideways later in the summer. It recently cleared the wedge it had been bound to, and after trading in a tight range above the breakout point and its 50-day moving average, CPE could be ready to resume the prior trend.

While I am leery of the Oil stocks having a sustained rally with Crude Oil being stagnant, we are also headed into the heart of hurricane season and the summer driving season. If Oil gets a spike, it could spark more interest in this group. With many of these stocks already acting well, it could lead to some great trading opportunities. (For more on crude, see Contango Vs. Normal Backwardation.)

Charts courtesy of stockcharts.com.

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  3. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  5. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  4. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!