Wednesday, December 14, 2011

Inverse Head And Shoulders in the Oil Services

As I've tweeted about a few times, the market has numerous stocks set up with inverse head and shoulder formations. These are usually indications of a bullish pattern where a stock or ETF is the process of a significant breakout off a bottoming process.

In most cases, the breakout corresponds with the lows from the July/August plunge. Assuming stocks form this bullish technical indicator, it can be expected to reach back to levels where the plunge began. In some cases this calls for a major rally.

Naturally that doesn't seem likely these days with the European debt crisis and fears of a major slowdown in China. Unfortunately for most investors that is exactly why and when it happens. The least amount of investors expect a major rally in stocks so they all pile on the upswing.

It was interesting tonight to see Cramer focus on the potential H & S in the Oil Services ETF (OIH). Having not seen much mention of this occurence in other stocks, I wasn't beginning to wonder if it was just my crazy view.

Well apparently it has become more mainstream than I thought. While Stone Fox Capital typically doesn't play the individual ETFs, we're currently heavily invested in Weatherford Int'l (WFT) that has a similar setup to the OIH and should benefit just the same on any breakout.

See video below:



Agree with most of what Cramer says, except for his idea that it will take much longer to complete the pattern. When actually both shoulders have similar time frames, therefore, any breakout would need to happen this month not 5 months from now. Yes, that's within the next couple of weeks or the right shoulder becomes very extended. Time will tell.

As I posted the other day, the VIX is starting to show some fatigue suggesting that the shorts or at least the people looking for protection is running out of steam. Could be another part of the signal.


Disclosure: Long WFT. Please review the disclaimer page for more details. 


1 comment:

Mark Holder said...

Held on today, but the right shoulder can't suffer much more on the downside to still count.