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Oil glut

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U.S. Crude-oil inventories rose 8.3 million versus an expected drop of 3.3 million barrels. The news has helped to keep crude under $29 a barrel, but has spurred an outbreak of oil stock downgrades from several brokerages. The Oil Index (OIX.X) is down 3.42%.

Oil Index Daily Chart

The Oil Index is still in a nice up trend, but the steep run up in April was due for a pull back. It looks like prices want to pull back to the 328 - 326 area. The support area is comprised of the high from 3/8/01, and the 38.2% retracement bracket. If that should falter, the 50-dma is coming to the rescue.

Texaco and Amerada Hess Daily charts

Integrated Oil stocks like Texaco (NYSE:TX) and Amerada Hess (NYSE:AHC) are setting up the same pattern. The April run up pushed prices right against the upper end of an ascending channel, but the sell off has now dropped prices below the halfway point of the channel. I would expect prices to test the lower end of the channel, but the 50-dma could prevent prices from falling that far. I like to use regression channels for stocks that are in a solid up trend because it gives me a quick snapshot of my risk/reward. If prices are near the upper end of the channel, I know my upside is limited. Prices can temporarily breakout above the channel, or hug the upper boundary, but eventually they will fall back to the half point or lower end of the channel until the trend changes.

Jeffrey Canavan
Assistant Analyst

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