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In lieu of my usual evening recap detailing the continued troubling underlying divergences in the market despite resilient dip-buyers, I am going to discuss the OIH, once again. Please be sure to go back and read this post detailing the serious, multi-year supply that the oil services ETF is likely to encounter in the $155-$160 area.
Today, the OIH printed what is known in Japanese candlestick terminology as a “hanging man” candle. Basically, the hanging man is aesthetically similar to the bullish hammer. Both candles feature price dropping significantly from where it was at the opening bell, yet the buyers are able to rally back towards the end of the session up near the opening price level. Instead of appearance, what makes the hanging man bearish and the hammer bullish is predicated on when they are printed. If we are in a rather amorphous, oscillating market, then a hammer or hanging man carries far less significance, as too many traders make the mistake of extrapolating on them when they should usually be ignored.
However, after a steep uptrend, the hanging man must be taken very seriously, as there is a distinct possibility of an imminent reversal (just as after a downtrend, the hammer has a high reliability of signaling a bottom). Moreover, as is the case in the daily chart of the OIH seen below, price has been in a rising wedge (pink lines on chart), another pattern that must be taken seriously for its tendency to resolve lower. All of these red lights are being flashed as the OIH is running directly into the multi-year resistance I discussed in my post on Tuesday.
Essentially, there may be a perfect storm brewing in the energy space. Talk of commodities–specifically oil–being on an inevitable run higher for a variety of macro reasons (geopolitical, inflation) may very well prove true over the next few years. In the short run, though, a multitude of technical factors point to a lousy risk/reward profile for being long right here, right now.
Disclosure: No position in OIH
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great as always thanks
Wonderful info which 12631 traders were made aware of during the session today. Thanks Chess! By the way the IWM printed one as well.
Chess, thanks for the work. I cannot say thanks more than I have, love all the tools here and advice.
He’s great in 12631 as well, wouldn’t you agree?
Good to know where we’re at, link to holdings and weightings.
http://www.holdrs.com/holdrs/main/index.asp?Action=HOLDROutstanding&SubAction=OIH&HoldrName=Oil+Services+HOLDRS
looks like OIH was riding the 20d SMA railroad for awhile until Egypt came along and gave it a boost. Looks like 146 or so could be the dip to buy đŸ™‚