Energy Sector Storm Brewing - Oil and Gas Stocks

By: Chris Vermeulen | Thu, Dec 6, 2012
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Oil and gas along with their equities have been underperforming for the most part of 2012 and they are still under heavy selling pressure.

I watch the oil futures chart very closely for price and volume action. And the one thing that is clear for oil is that big sellers are still unloading copious amounts of contracts which is keeping the price from moving higher. Oil is trading in a very large range and is trending its way back down the lower reversal zone currently. Once price reverses back up and starts heading towards the $100 and $105 levels it will trigger strong buying across the entire energy sector.


Crude Oil, Energy & Utility Sector Chart - Weekly Time Frame

The chart below shows the light crude oil price along with the energy and utilities sectors. The patterns on the chart are clearly pointing to higher prices but the price of oil must shows signs of strength before that will happen. Once XLE & XLU prices break above their upper resistance levels (blue dotted line) they should takeoff and provide double digit returns.

$WTIC Light Crude Oil - Spot Price (EOD) CME
Larger Image

Looking at the XLU utilities sector above I am sure you noticed the steady rise in the price the last couple of years. This was a result in the low interest rates in bond price and a shift from investors looking for higher yields for their money. Utility stocks carry below average risk in the world of equities and pay out a steady and healthy dividend year after year. So this is where long term investment capital has/is being parked for the time being.


Utility Stock Sector - Deeper Look - 2 Hour Candle Chart Time Frame

Last week I covered utility stocks in detail showing you the Stage 1 - Accumulation base which they had formed. The chart below shows the recent price action on the 2 hour candle chart and recent run up. You can learn more about how to take advantage of this sector here: http://www.thegoldandoilguy.com/articles/its-the-season-to-own-utility-stocks/

XLU Utilities Select Sector SPDR NYSE


Oil and Gas Services - Daily Time Frame

This chart shows a very bullish picture for the services along with its relative strength to oil (USO) at the bottom. While the sector looks a little overbought here on the short term chart, overall it's pointing to much higher prices.

XES SPDR S&P Oil & Gas Equipment & Services Index NYSE


Energy Sector Conclusion:

In short, crude oil looks to be trading in a VERY large range without any sign a breakout above or below its channel lines for several months at the minimum. But if the lower channel line is reached and oil starts to trend up then these energy related sector ETFs should post some very large gains and should not be ignored.

 


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Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

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Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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