A New Look at the Chaotic Energy Sector

Oil Services HOLDRs

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Source: eSignal

The Oil Services HOLDRs (OIH - commentary - Cramer's Take) rallied to a high in the 160s in 2006 and pulled back. It returned to this level 10 months later and broke out. That run carried the fund above 200 last October, where it rolled over with the rest of the equity market. The stock bounced with the major indices in January, but has shown little progress in the last month.

There's no evidence here that oil services stocks are getting ready to recover and charge up to new highs. In fact, the bounce off the January low has been marked by limp accumulation and a failure to stay above the 200-day moving average. The bottom line: This is a group to avoid these days, despite the crude oil rally.

By the way, you're not alone if you think this weekly pattern looks disturbing. The fund is marking out the boundaries for a potential head-and-shoulders topping pattern that might yield far lower prices later this year, and into 2009. But let's not get ahead of ourselves, because a lot could happen between now and then.

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At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

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