Refiners' and Oil-Service Charts Signal Caution

 | Aug 20, 2012 | 1:55 PM EDT  | Comments
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Stock quotes in this article:

tso

,

wnr

,

hal

,

slb

,

OIH

In my life as a trader, I've committed to learning and using all the tricks that are out there. I also consider myself an astute technician, reading the charts and assessing the risks and rewards that only the pure numbers generate. Today, the charts of stocks in two specific energy sectors, services and refining, have me slow to pull the trigger on any buying in energy right now.

There's been a distinct underperformance in energy shares in 2012 -- everyone has become aware of that. But since late June of this year, the energy sector has done a magnificent job in trying to catch up to the rest of the indices and rebalance itself. For those of you who follow me regularly, some of the recommendations I made in early July took advantage of those very cheap numbers to make decent returns, one being my recommendation of the service company Baker Hughes (BHI).

But again, those of you who follow me regularly know that outside of some specific master limited partnerships and some natural gas stocks, I've been slow to recommend other names in the energy space. The look of the charts has me less than enthused.

It's not that I'm not bullish on many of these names, but the violent move of their charts has me waiting for a pullback in most of them. Let me just throw out a few of these and see if you don't feel the same. First, some refiners:

TSO Daily
TradeStation
WNR Daily
TradeStation

Both of these charts, for Tesoro (TSO) and Western Refining (WNR) are nosebleed-inducing, based upon the disconnect in pricing between West Texas Intermediate and Brent crude that has gone on months longer than anyone expected and buried just about every trader I know. Bottom line is, this is the trade that will crash just as soon as every wise-guy trader who thinks he "knows better" throws in the towel on it. Believe me, it's coming, and I don't want you to be a part of the slaughter.

Now a quick look at the biggest oil services and drillers:

HAL Daily
TradeStation
SLB Daily
TradeStation

I love both of these names, Halliburton (HAL) and Schlumberger (SLB), particularly Schlumberger, but again, the rocket moves on both these names make them impossible to like here. Both charts show an accumulation that's about to go red, a stochastic that is unsustainably high and a moving-average line that's closing in on some tightening Bollinger bands. If all this is techno-gobbledy-gook to you, that's fine: The bottom line is that all these indicators are pointing down, and dangerously so, at least for the medium term of the next couple of weeks.

So, how should you play this? If you caught the move in Baker Hughes or in other oil services, now is the time to snip some gains, or if you'd rather, take advantage of the low volatility of late August trading to buy some puts or put spreads in the ultra-liquid Market Vectors Oil Services ETF (OIH). It won't surprise you to see that chart, which looks just like the others and is ripe for a fall:

OIH Daily
TradeStation

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