It's not as much fun to say you own Texaco (NYSE:TX), but we don't trade for fun, we trade to make money. With gas prices up an average of 14 cents a gallon, oil stocks have been some of the best performing stocks this year.
Oil Index Bullish Percent and Daily Charts
The Oil Index's bullish percent chart, a graphical presentation of how many stocks are trading with a buy signal on a point and figure chart, has foretold of short-term tops in this sector. In late December the bullish percent chart entered overbought territory above 70 at point A. Point A on the bar chart shows the sell off that then ensued. In late February a similar sell pattern set up. The BP chart entered overbought territory, and then in early March the bar chart sold off (Point B on both charts). Similar buy patterns were set up when the bullish percent chart approached oversold at 30. Just because a bullish percent chart goes into overbought or oversold territory isn't an instant signal to buy or sell, it is more of warning signal. Looking at Oil's BP chart shows overbought spikes to 80 or even 90 before reversing. Used in conjunction with a 14 period RSI, bullish percent charts have done a good job at picking tops. Based on current bullish percent information, we see that the Oil Index still has a little bit of upside left.
Texaco Daily Chart
Since I started out this little diatribe talking about Texaco, I figured I would throw in its chart. TX has gained 20 points since October, but is stuck at the previous high of $70. The bullish percent chart suggests that Texaco could rise to the upper range of the channel, but the risk on a long play is too great for me right now. If prices can fall back down to the lower end of the channel, Texaco could set up a nice long play.