Price Headley must have read my analysis over the weekend. <lol> He spotlighted the OIH today.
BigTrends.com
Sector Spotlight: Oil Services
November 24, 2003
The oil industry is generally a volatile one, especially during times of geopolitical turmoil like we've seen over the last three years. This daily volatility, of course, creates difficulty in spotting any actual trends. But when looking at the weekly chart of the AMEX Oil Service HOLDRs Trust (symbol: OIH), the bearish trend is much more evident. Not only are price charts going lower, the poor fundamental performance of these companies merits the drop in share values.
There is one key distinction that needs to be made first - this bearish opinion only applies to oil services stocks, and not the entire oil industry. In fact, oil and gas operation companies, such as Ashland Oil (ASH) and Dynegy (DYN), are actually doing quite well. The weaker oil service stocks are names such as Baker-Hughes (BHI), Halliburton (HAL), and Rowan Companies (RDC). With a quick glance at any of those charts you'll be able to see why we're bearish on the whole oil services industry, and the Oil Service HOLDRs Trust (OIH).
The technical signals here are pretty straight-forward. On our weekly chart you'll find a falling resistance line (red, dashed), and the MACD lines have now both crossed under zero. You'll also see that the Chaikin line crossed under zero several weeks ago, and is still falling. This is a sign that the heavier volume days are being created by the sellers, while the buying volume is still sinking. But the final sell signal would be close under the support line that has been so strong since August. As you can see, we've hit support and bounced off of the 53.80 level about four times in the last four months, and have yet to firmly fall under it. All the same, we're still pessimistic about these stocks.
Fundamentally speaking, there's not a lot to cheer about. With an average P/E of 34.3, it's not as if these stocks are undervalued. Nor is it likely that these companies will be able to justify their valuations any time soon, as the average quarterly earnings growth is a meager 1.0%. Revenues are expected to grow at 15.4%, but with this industry being in the bottom third of all industries in the categories of return-on-equity and earnings growth, there aren't a lot of investors interested in being buyers of oil service stocks.
We're targeting a drop all the way 46.50 for OIH; that's near the low from last October, but that's really the only other possible support level on the radar. Stops on this bearish bias come with a close above the nine-week moving average, which is currently at 55.95
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