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Crude oil (WTI) is showing signs of stabilization

Key Points

  • West Texas Intermediate (WTI) crude oil has managed to find a "floor" on a significant long-term trend line support at 46.80/43.60.
  • Potential multi-month technical rebound towards 65.20 before 75.70
  • Direct correlation between WTI crude oil and S&P Global Energy Sector Index
  • Equities highlights to take advantage of this multi-month potential stabilization phase; EOG Resources (NYSE:EOG), Hess Corp. (NYSE:HES), Origin Energy (ASX: ORG) & Ezion Holdings (SGX: 5ME)

Since the high of 107.73 seen in June 2014, (WTI) crude oil has tumbled by 58% as OPEC refused to control the supply of crude oil from the cartel's oil producing countries. This horrendous decline of 58% is the largest magnitude on record since the 2008 Global Financial Crisis where it fall by 77% from its peak of 147.27 printed on July 2008 to a low of 33.20 seen in January 2009.

Let's us analyse (WTI) crude oil from a technical analysis perspective to decipher its key levels and future expected movement.

West Texas Intermediate (WTI) Crude Oil

From looking at its monthly chart, WTI appears to have found a floor at long-term trend line support (in dotted green) in place since mid-December 1998. In addition, the monthly RSI has dipped into an "extreme" oversold level not seen in more than 10 years!

The weekly stochastic oscillator has just exited from its oversold region and still has "room" for further potential upside before reaching its overbought region. Therefore, as long as the key support at 46.80/43.60 holds, the WTI may see a multi-month rebound towards 65.20 before 75.70(also correspond closely with the 38.2/50% Fibonacci retracement from 16 June 2014 high to 26 January 2015 low ).

iShares Global Energy ETF

The iShares Global Energy ETF(exchange traded fund) tracks the S&P Global Energy Sector Index which comprises companies around the world that produce and distribute oil and gas.

Its fortunes are directly related to the movement of the (WTI) crude oil as we can see that the iShares Global Energy ETF has peaked in June 2014 at 47.91 which coincides with the peak of WTI(at 107.73 on June 2014) before a similar "waterfall" slide occurred in the second half of 2014.

Price action has managed to bounce off from the 33.80 support. In addition, the weekly RSI has just exited from its oversold region. All these elements suggest a potential multi-month rebound towards the pull-back resistance at 41.90. However, it is important to note that it is still too early to call for a "bottom" in crude oil from a technical analysis point of view.

All these observations suggest that oil and gas related equities are due for a potential multi-month technical rebound after being battered down badly last year. Let's us turn our focus now to 4 oil and gas related stocks selected based on their technical elements and "relative strength" against the iShares Global Energy ETF (benchmark).

EOG Resources (EOG)

Key elements

  • The intermediate term RSI oscillator has just broken above its former trendline resistance
  • Recent up movement in price action has been accompanied by an increase in volume.
  • The ascending range top at 104.40 confluences with a Fibonacci cluster.

Technical view

The intermediate support is at 94.72/92.52 and as long as the pivotal support at 87.45 holds, EOG Resources is likely to see a push up towards its ascending range top at 104.40. However, a break below 87.45 may negate the bullish tone to see a retest on the key long-term support at 81.07.

Hess Corp (HES)

Key elements

  • Price action has broken above its "Expanding Wedge" (in dotted green) consolidation formation and 20/50-day Moving Averages.
  • The intermediate term RSI oscillator has just broken above its former trendline resistance
  • The 80.00/86.25 resistance also confluences closely with the 38.2% and 50% Fibonacci retracement from 30 July 2014 high to 16 December 2014 low.

Technical view

As long as the pivotal support at 63.80 holds, Hess Corp is likely to see an upside movement towards 80.00 before 86.25. On the other hand, failure to hold above 63.80 may see the continuation of its long-term bearish trend to target the next support at 56.10.

Origin Energy (ASX: ORG)

Key elements

  • "Double Bottom" bullish breakout with neckline support now at 11.90.
  • The upside movement before the bullish breakout has been accompanied by an increasing volume.
  • The gap and 20-day Moving Average is acting as a support at 11.34/11.12
  • The 13.64/13.93 resistance zone also confluences closely with the 02 September 2014 high to 11 December 2014 low.

Technical view

The pivotal support to watch will be at 11.34/11.12 for a potential further upside movement towards 13.64/13.93. However, a break below 11.12 is likely to negate the bullish tone to see a decline to retest the key long-term support at 10.28.

Ezion Holdings (SGX: 5ME)

Key elements

  • Since the 16 December 2014 low, Ezion has evolved within an ascending channel with the lower boundary now at 1.24.
  • The 20-day Moving Average is acting as a support at 1.24 as well.
  • The intermediate term RSI oscillator is still holding above its support and 50% level.
  • The 1.525 resistance also confluences closely with the 50% Fibonacci retracement from23 January 2014 high to 16 December 2014 low.

Technical view

As long as the pivotal support at 1.17 holds, Ezion may see a further push up towards 1.525. On the other hand, failure to hold above 1.17 is likely to invalidate the intermediate term bullish trend to see a decline to retest the significant 16 December 2014 swing low at 1.020.

Source: Charts are from eSignal

Disclaimer

The information contained in this material is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index Asia Pte Ltd.

 

kelvin_wong
Kelvin Wong, CFTe

Chief Technical Strategist (Asia), City Index

Kelvin is professional technical analyst with extensive experience in stock indices, equities and foreign exchange. Kelvin employs a combination of fundamental and technical analysis and specialises in utilising Elliot Wave and Fibonacci analysis to pin point potential reversal levels in the financial market. Prior to joining City Index, Kelvin has traded actively and provided investment advisory for institutional traders/investors such as Deutsche Bank, Credit Suisse, ANZ and Goldman Sachs. He has also conducted technical analysis related trading workshops and seminars for thousands of private traders in Singapore and Malaysia.