A Technical View: John Murphy

01/30/2004 12:00 am EST


John Murphy

Head Market Analyst, Stockcharts.com

"Energy has been a top-performing sector," says technical expert John Murphy. "Crude oil prices recently jumped to close above $36, while natural gas and heating oil prices gained 5% and 3% respectively. That gave another big boost to the energy sector." Here's his outlook.

"The PHLX Oil Service Index ($OSX NYSE) has been strong and continues to lead the sector higher. The index has climbed to the highest level in 20 months. The relative strength line has also turned up versus the S&P 500. That's a good combination. The chart below shows the Oil Service Index climbing to the highest level in seven months. Just a month ago, the index broke out of a basing pattern. Since then, it has successfully retested the breakout point and resumed its uptrend. I also suggested a month ago that while natural gas stocks were the strongest part of the energy patch, oil service stocks were the cheapest and provided the best value. That's still the case.

"Schlumberger (SLB NYSE) has led oil service stocks higher. The stock recently jumped 7% in one day and is moving up to challenge its early 2002 peak near 60. Its rising relative strength line shows SLB leading the OSX higher. That makes the stock a leader in the strongest industry group in a sector that's starting to show new leadership. Two other top percentage energy gainers are  Transocean (RIG NYSE) and  Anadarko (APC NYSE). Both also have attractive chart patterns. In the oil service group, RIG appears to be breaking out of an 18-month basing pattern. Although not in the oil service index, APC recently broke through major resistance at 50 and then successfully retested that level. That's a bullish looking pattern."

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