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A New Buy Signal for Oil Stocks

By Jeff Clark
Tuesday, June 26, 2012

Oil stocks today look just like gold stocks did last month.
You remember how the gold sector was set up last month, right? The sector was brutally oversold. Many gold stocks were trading at valuation levels we hadn't seen in years. They were lagging way behind the action in the metal. And even the most die-hard gold bugs were giving up on the mining stocks.
Now, of course, we know last month was an ideal time to buy gold shares. (My S&A Short Report subscribers booked a 112% gain on major gold producer Seabridge Gold in just two days.) 
So the question is... If you had the chance to buy into that setup again, would you do it? 
It looks like we're going to have that chance in the oil sector.
Oil stocks look like death. The AMEX oil index is down 10% in the past two months. It's down almost 20% since March. Oil services giants like Halliburton (HAL) and Baker Hughes (BHI) are trading at less than 10 times earnings. It's hard to find any analyst, anywhere, who'll say something good about the sector.
And as we saw with gold stocks last month, the bullish percent index for the oil sector (BPENER) has just whipsawed into, out of, and back into a buy signal.
Take a look...
Remember... a bullish percent index (BPI) measures the percentage of stocks in a sector that are trading with bullish point-and-figure chart patterns. A BPI is typically overbought when it rallies above 80, and it's oversold when it drops below 30.
Buy signals occur when a BPI drops into oversold territory (below 30) and then turns higher.
The red circles on the chart above represent buy signals. As you can see, BPENER triggered a buy signal in late May. But that signal reversed – similar to what happened to gold stocks in early May – and BPENER dropped to a lower low.
We got a second buy signal earlier this month.
This is nearly identical to the action we saw in the gold sector bullish percent index last month. In fact, the whole setup is nearly identical.
The only problem is that this latest buy signal reversed as well. But I'm watching this for another turn higher to signal a good time to buy.
Oil stocks are brutally oversold. They're trading at dirt-cheap valuations we haven't seen in years. Sentiment toward the sector is bearish.
This may not be the absolute bottom for the oil sector. But we're close to at least a short-term bounce.
Best regards and good trading, 
Jeff Clark

Further Reading:

Last month, gold stocks broke out of their downtrend. And today, the action in oil looks almost exactly the same. Catch up on the story here: Gold Stocks Have Officially Broken Out.
Jeff recently told Growth Stock Wire readers about another bullish indicator... "There's no telling for sure what we'll get this time around," he writes. "But based on this rare buy signal, it's a good idea to buy stocks into any weakness over the next few weeks..." Read more here: This Indicator Just Flashed a Rare Buy Signal.

In The Daily Crux
Market Notes
Oil continues to get clobbered... prices are down 27% in three months.  
Big retailers are in a steady uptrend... Wal-Mart, Target, and Dollar General are all up 25%-plus over the past year, including dividends.
Health care giants are working on a breakout... Johnson & Johnson, Pfizer, Merck, and Abbott Labs are all close to fresh highs.
Uranium giant Cameco is building an uptrend... shares are up 20% since late 2011.
Market Watch
Symbol Price
S&P 500 1313.72 -1.6% +3.6%
Oil (USO) 29.80 -1.0% -16.8%
Gold (GLD) 153.76 +0.7% +5.1%
Silver (SLV) 26.71 +2.1% -19.9%
U.S. Dollar 82.44 +0.3% +9.5%
Euro 1.25 -0.6% -11.9%
Volatility (^VIX) 20.38 +12.5% -3.4%
Gold Stocks (^HUI) 431.81 +1.1% -13.8%
10-Year Yield 1.61 -3.6% -43.9%

World ETFs
Symbol Price
USA (SPY) 131.32 -1.6% +5.8%
S. Africa (EZA) 62.42 -1.0% -3.6%
Singapore (EWS) 11.67 -1.6% -8.0%
Japan (EWJ) 8.92 -1.6% -9.9%
Canada (EWC) 24.92 -1.5% -15.1%
S. Korea (EWY) 52.03 -3.2% -16.1%
Taiwan (EWT) 11.71 -2.0% -16.3%
Lat.America (ILF) 39.39 -2.1% -17.2%
Israel (ISL) 12.02 +0.0% -21.5%
China (FXI) 31.83 -2.2% -21.5%
India (IFN) 19.18 -0.7% -30.9%
Russia (TRF) 13.21 -2.1% -36.6%

Sector ETFs
Symbol Price
Retail (PMR) 24.12 -1.5% +18.3%
Big Tech (QQQQ) 62.13 -1.9% +15.4%
Consumer Svcs (IYC) 78.89 -1.3% +13.8%
Utilities (XLU) 36.19 -0.2% +13.8%
Health Care (IYH) 77.10 -1.3% +9.0%
Real Estate (IYR) 61.34 -0.6% +8.5%
Biotech (PBE) 22.64 -1.1% +4.3%
Construction (PKB) 12.76 -1.2% +0.9%
Software (PSJ) 25.40 -2.0% +0.2%
Oil Service (OIH) 33.06 -3.0% +0.0%
Big Pharma (PPH) 37.63 -1.4% +0.0%
Financials (IYF) 53.07 -1.9% -0.1%
Media (PBS) 14.10 -1.4% -1.3%
Insurance (PIC) 15.25 -1.6% -1.5%
Industrials (IYJ) 64.95 -2.0% -1.7%
Transportation (IYT) 89.37 -1.9% -3.9%
Defense (PPA) 18.31 -1.7% -5.5%
Water (PHO) 17.34 -1.3% -5.9%
Telecom (IYZ) 21.82 -1.1% -7.1%
Semis (PSI) 13.95 -3.2% -13.1%
Basic Mat (IYM) 62.09 -1.5% -16.0%
Nanotech (PXN) 6.22 -1.4% -24.7%
Alt. Energy (PBW) 4.34 -1.8% -47.5%

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