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Watch the oil service stocks.

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This morning at 09:30 EST, I alerted IndexSkybox.com traders to a potential "win/win" position for bullish traders in the Oil Service Index (OSX.X) and we've seen a nice bounce in that index in the past hour. Both the daily interval and 60-minute looked bullish and this may be a place where "uncertain" money moves before the Fed rate cut announcement.

Oil Service Index Chart - 60-minute interval.

The 60-minute chart looked as bullish as the daily interval chart, but gives traders a different look of some bullish technicals taking place. I love it when resistance broken starts acting as support. Often times that can mean the MARKET is starting to turn toward a bullish stance if it had been bearish at that level before. If the market comes to agreement on a higher price, that's where bullish traders want to be.

Oil Service Index - last seven months.

The daily interval chart gives traders some different moving averages to be drawing conclusions from. The 200-day is considered to be a longer-term MA and the 50-day is a more intermediate term. Here we'd say the long-term is still positive and intermediate-term is starting to improve. If or when the 50- day moves higher than the 50-day, you're usually seeing a nice advance take place. A move above 130 would be quite bullish. I like a bullish play in the OSX.X or strong stocks in the group as a way to play the Fed move. My thinking being is a 25-basis point cut might see market participants seek out this group for its strong fundamentals, while a 50-basis point move would be encouraging for a strengthening economy, thus higher energy prices and continued spending by major energy companies at the service level. That's why I thought this group might offer traders a win/win situation, regardless of what happens with interest rates tomorrow.

Input Output, Inc. Chart - last seven months.

Purely based on technicals, shares of IO look to be a leader if the oil service sector resumes a bullish phase. I've talked before how the "exploration cycle" is usually the last to benefit from higher energy prices and after a 2.5 year base building, shares of IO may finally be ready to benefit. The recent rally has seen some volume come into the stock, but a couple of 1,000,000 share days along with a higher price could mean institutions are coming to the table on expectation of strong fundamentals.

Jeff Bailey
Staff Analyst

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