Many oil service stocks have been appearing on my stock screens the past few nights and it comes as no surprise with the U.S. dollar showing weakness over the past two weeks. Oil is typically inversely correlated to the "greenback" and if oil is seen as strengthening, then its service stocks usually aren't too far behind.
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The group, as represented by the SPDR Select Sector Fund - Energy (NYSE:XLE) ETF, has been consolidating near its 200-day moving average for several months following a similar pattern to crude oil. What is interesting is that XLE didn't weaken much despite the U.S. dollar trading strongly towards the end of 2011. XLE has been setting progressively higher lows since last October and recently cleared its 200-day moving average. It has since been trading in a tight range near the $72.50 level which has been acting as resistance for several months. If it can successfully clear this area, it could set the stage for a test of last year's highs near $81. (For related reading, see The 7 Pitfalls Of Moving Averages.)
National Oilwell Varco, Inc. (NYSE:NOV) is an individual stock in this sector following a similar pattern. NOV has been consolidating since a false breakdown in October, as it trades between the mid $60s and $75. It was struggling with its 200-day moving average as well, until clearing the average in late December. It has started to trade in a very tight range near $75 has just started to clear this level. If it can sustain above this area, it could set the stage for a test of the mid $80s. (For related reading, see Simple Moving Averages Make Trends Stand Out.)
Crosstex Energy, L.P. (Nasdaq:XTEX) is another oil stock testing a key resistance level. XTEX has been struggling with $17.50 since August 2011. The stock has been finding strong support near $14.50 as it builds a wide base. Recently, XTEX has been experiencing a decline in volatility as the base matures. XTEX is trading in a very tight range over the past month, and any strength that carries it above $17.50 may lead to a breakout. (For related reading, see 3 Reasons Not To Trade Range Breakouts.)
Anadarko Petroleum Corporation (NYSE:APC) is an oil stock that is not quite as close to a breakout, but still revealing a healthy consolidation. APC has been consolidating between $72.50 and $85 after a violent shakeout in October. It has found strong support near $72.50 and is starting to form a well developed trading range. It is resting above its 50-day moving average and could be close to testing a trendline marking recent highs. If it can clear this trendline and the $82.50 level, it could lead to new highs. (For related reading, see The Utility Of Trendlines.)
The Bottom Line
It is always worth investigating when an entire group moves in unison. The oil service stocks have been consolidating now for several months and many are starting to press up against resistance. While it is possible that they fail to emerge from their consolidation patterns, there are enough clues suggesting a possible breakout. Traders should keep an eye on the index ETFs for the group such as XLE to see if the strength is confirmed. If so, it could lead to several individual names breaking out. (For related reading, see 6 Popular ETF Types For Your Portfolio.)
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.