US oil inventory data indicating larger stockpiles has weighed down prices, and MoneyShow's Tom Aspray examines the charts for potential buy candidates.
After a positive opening, stocks sagged as the day progressed with the Nasdaq 100 closing down slightly while the Dow Industrials and S&P 500 were slightly higher. The market internals were positive and the NYSE A/D line has made further new highs.
The materials and financial sectors showed the best gains for the day. Though the S&P 500 and Spyder Trust (SPY) are still well below their all-time highs, both are close to their daily starc+ bands.
The May crude oil contract is down 8% from its February 13 highs, and given the strength in some of the economic data, I expect that demand for crude oil will increase as the year progresses. The seasonal tendency (see chart) is for crude oil to bottom in February, so the recent correction should be a buying opportunity.
The energy ETFs like the Sector Select SPDR Energy (XLE) or SPDR S&P Oil and Gas Exploration ETF (XOP) lost 4-6% in the late February correction but rebounded quickly. Therefore, they do not seem to provide a reasonable risk entry at this time. However these two oil stocks have positive long-term technical patterns and are now near good support where new buying can be done.
Chart Analysis: The weekly chart of the crude oil contract shows the drop over the past month as the continuous contract has dropped below the quarterly pivot at $92.09 (blue line).
- The short-term uptrend from the 2012 lows (dashed line) is now at $88 with the weekly starc- band is just bellow $87.
- There is multi-year support in the $80 area, line c.
- The weekly OBV bottomed last November and then broke its downtrend, line c, in the middle of December.
- The OBV is acting much stronger than prices as it moved well above the 2011 highs and is still holding above its WMA.
- There is initial resistance now at the quarterly pivot and a close above $94.50 will turn the short-term momentum positive.
Atwood Oceanics Inc. (ATW) is a $3.24 billion offshore drilling contractor that peaked at $55.49 on February 14 and had a low over the past two days at $49.20. This is 11.3% below the recent high.
- The weekly chart shows that the 20-week EMA is now being tested as ATW is back to the long-term resistance (line f), which is now support.
- The 50% Fibonacci retracement support at $49.25, which is calculated from the November lows, has now been reached.
- The 61.8% support is at $48 with the quarterly pivot at $46.84.
- The relative performance has dropped sharply from the February highs and is now back to weekly support at line h.
- The weekly on-balance volume (OBV) did confirm the recent highs and has just dropped below its rising WMA.
- The OBV has also reached converging support at lines i and j that go back to 2011.
- The daily studies (not shown) are negative as they are below their WMAs.
- The quarterly R2 resistance is at $53.81, and once above $55.49, there are additional targets at $57.10.
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Whiting Petroleum (WLL) is a $5.72 billion independent oil and gas exploration company that peaked in early 2011 at $75.91.
- The weekly chart shows a long-term triangle formation and the downtrend, line a, has been tested over the past five weeks.
- A close above $50.80 will confirm the breakout with further resistance at $54.86.
- There is more important resistance at the early 2012 high of $63.97.
- The weekly relative performance shows a short-term uptrend, line d, but needs a strong close above its downtrend (line c) to confirm a bottom.
- The weekly OBV has already bottomed as it broke through its long-term downtrend, line e, in the middle of January.
- The OBV looks ready to turn up this week, which may signal an end to the correction.
- There is minor support now at $46.80-$47.80 and then at $45.50 with the quarterly pivot at $44.68.
What it Means: Though another 2-4% correction in the major stock market averages is clearly possible before the month is over, I would expect that many stocks will act much better. My analysis shows no signs of a major top, which is why I think investors should be buying not selling.
The key, of course, is to watch the risk on anything you are buying, use stops and don't chase any market. Both of these stocks look good, and I would be a more aggressive buyer of Whiting Petroleum (WLL).
How to Profit: For Atwood Oceanics Inc. (ATW), would go 50% long at $49.27 and 50% long at $48.42, with a stop at $46.46 (risk of approx. 4.8%). The initial upside target is at $55.49 to $57.10.
For Whiting Petroleum (WLL), would go 50% long at $48.04 and 50% long at $46.78, with a stop at $44.43 (risk of approx. 6.2%). The initial upside target is at $54.86.
Portfolio Update: Per Monday's The Most Oversold Dow Stocks, should be 50% long Exxon Mobil Corp. (XOM) at $88.66 and would add an additional 50% long at $87.82. with a stop at $84.19 (risk of approx. 4.5%).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.