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Oil Stocks Reach Short Term Support Levels

May 04, 2011 12:43 PM ETOIH, XOM, CVX
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 Oil stocks have collapsed this week, a sell off of monumental proportions. The drop was almost too obvious as oil was at a level where if it moved up, the oil stocks would sell off and if it moved down, oil stocks would also sell off. This was a no win situation for stocks like Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP) and Marathon Oil Corporation (NYSE:MRO). Chevron and Exxon had rallied over 60% in the last three quarters and were already extended. Add in the major no win situation and the short was 100% in play.

While the three day drop on oil stocks has been fantastic, there are some signs that a short term bottom has been reached. The charts on everything from Exxon, Chevron to even the Oil Service HOLDRs (NYSE:OIH) are saying this.

Exxon Mobil dropped from a double top high of $88.23. It hit a low today of $84.06. This low of the day matches up perfectly with a pierce of the 50 moving average on the daily chart and is just $0.25 shy of a key gap fill going back to April 19th, 2011. This range should be solid support for three days or so.

Chevron dropped from a high on Monday at $109.58 to a low today of $103.70. As CVX hit the low today, it is less than $0.50 away from the support base in early to mid April at $103.35. This should hold it for a few days and it is likely to see CVX bounce for two to three days.

Perhaps the best example of all is the OIH. This represents all the oil services as an ETF. The OIH has dropped for three straight days, falling into the mid March lows of $149.50. This level is major support for the ETF and should hold in the short term. This should get a solid bounce in the coming few days before ultimately going lower.

While many oil stocks are hitting key daily support levels, it is important to recognize that this is only short term support for a minor bounce. After this happens, oil stocks will fall further to the downside. Ultimately, daily 200 moving averages should be hit which are far below current levels.

Gareth Soloway

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