Leigh Drogen » OIH

The Equity Rally End Game, Demand Destruction

Leigh Drogen — Wed, 07 Apr 2010 01:50:35 +0000

I want to take a moment tonight to take a broader view of the market and ask, what would end this trend in equity appreciation. My thesis continues to be that demand destruction caused by a surge in crude and other materials eventually puts the pinch on the consumer and topples the retail names. Before that happens though, you’re going to get a great chance to get long the energy and material names, so play the trend until it bends, video below…

Wait For Consolidation

Leigh Drogen — Tue, 23 Feb 2010 14:27:32 +0000

Get out your pens and pencils because I’m moving quickly this morning through a bunch of names. The market is still overbought short term and needs time to rest. Crude also needs to pull back, those stochastics are reading above 99. I think materials take show some relative weakness over the next few days and then I would be looking to buy the oil service and tech names.

The Nothing Day

Leigh Drogen — Tue, 17 Nov 2009 23:22:05 +0000

Today was a nothing day, anything that happened you should pretty much throw out the window and forget, no one was trading. We are still trapped under the upper trend channel on the $SPY after breaking out of the bull flag put in last week. Negative divergences are forming on the hourly chart which should raise a red flag as we are at the top of what has been a sell the rip range. The 5 day moving average continues to hold strong and still rising. Getting short here would be foolish, but raising some cash is the smart play. If we break to the upside it will be on large volume and fairly evident. The next few days will be very important as the market attempts to work off overbought readings by correcting through time instead of price. If we can make it to Friday without a move below the 5 day moving average, I believe that gives us a green light for 1200.

It won’t take rocket science to figure out what’s going to get us there. Crude is about to blast off again, gasoline is a step ahead breaking the bull flag as it put in a strong close. As I’ve been saying for a while, the next leg up will come from crude and gold, get some exposure to oil service $OIH and the strongest gold miners in the $GDX. Don’t futz around with the laggards, this rally has been about buying the big momentum names.

I’ll be traveling to the trader expo in Las Vegas tomorrow, if you’re going to be there by all means shoot me an e-mail so that we can connect.

Crude Realities

Leigh Drogen — Mon, 12 Oct 2009 18:19:07 +0000

I’m long crude oil this morning via $USO at 37.82 and will add a second lot at 38.38. I want to take a few moments this afternoon to focus on the energy complex as a whole, as these are important levels.

$USO broke through the upper 20 day donchian channel today giving me a buy signal. I trade two systems, the 20 day and the 55 day. Given the triangle pattern we are seeing in crude I’ve gone with the 20 day because it gives me a better risk reward entry. Notice as well the bullish MACD signal coming from a tight coil pattern. Watch for volume to come in on a break of the triangle consolidation pattern to confirm the move. The 200 day moving average is now flat and the primary trend in crude is now pointing up. Triangular consolidation patterns usually resolve themselves in the direction of the primary trend, a very useful bit of info if you were trading the energy complex last fall as it went to hell.

The November CL_F contract is what I am watching for my signals. 76 is the yearly high and the location of the 55 day donchian channel.

The weekly crude oil index chart is up against the 100 week moving average and has put in a large ascending triangle. The $75 area is also confluent with the 38.2% retracement from the 08′ highs. A move through this area should get crude going to 85 in a hurry.

I’m looking at two specific assets as a guide in crude right now, Russian equities $RSX and the Canadian Dollar $USDCAD.

Russia broke out in a big way early on in September and has been on a tear ever since. The volume here is the most amazing thing as there is true accumulation going on. Russia represents the “risk” trade in all its glory more than anything else as it shows both the largest reward for growth and largest risk to the energy complex. I feel that investors piling into Russia are betting on the energy complex as a whole, the two are so highly correlated. I am always looking for certain assets that run ahead and light the way for others, Russia is clearly telling us something here.

The Canadian Loonie is owning the US Dollar right now. The Dollar is being owned by just about everything besides the Pound, which is in turn driving up the price of all other assets. The falling dollar will buoy crude prices to some extent, but I am looking at the $USDCAD for a larger breakout in crude as the Canadian Dollar is so linked with crude prices.

Energy equities are leading crude to the upside here as the equity market as a whole is flying. The oil services ETF $OIH is leading the way as it broke out for its triangle consolidation pattern. It went on to retest the breakout level at the 50 day moving average and ripped from there. The weekly chart tells the tale as $OIH broke above its 100 week moving average which is now flat. Notice that oil service equities have lagged behind crude in the rebound as they have yet to make it to the top of the congestion area which sits around 160. I am expecting major out performance here if crude rips.

The integrated and independent energy producers lag even further behind crude as the just recently broke out from a large base put in over the past year. We are seeing the same test of the 100 week flat moving average. I would not have my energy sector money here as this industry has lagged the rest of the energy sector.

Everything looks set for the energy complex to follow through to the upside. If you play in this space, get long the strongest oil service names and more levered exploration names like $PBR . Be aware that a failed breakout and a rebound in the US Dollar could crush crude very quickly. Trade what you see, not what you think, and always manage risk.

Oil Service Favorites: $NOV, $CAM, $FTI, $DRQ, $HLX, $EXH, $RIG, $ATW

Independent and Exploration Favorites: $PBR, $CEO, $OXY, $APC, $NBL, $XCO