The recent crash in the precious metal space has rocked
commodity investors. Metals like gold and silver have faced the
wrath of the vicious sell-off in the commodity space earlier in
the week, losing double digits in many cases (read
Brutal Trading Continues in Gold Mining ETFs
Unfortunately, along with precious metals, other commodities
as well as commodity producers have seen a vicious plunge in
prices as well. This has created a huge dent in what was until
recently ever increasing positive sentiment.
Speaking of energy commodities, these have had a good start to
the year, particularly after a forgetful year in 2012. In fact
the energy commodities for long have been plagued by falling
prices on account of oversupply as well as reduced industrial
It was also reflected in the top and bottom lines of energy
companies as the energy sector proved to be one of the laggards
for the S&P 500. However, after a good start to the year, it
seems that the energy commodities, especially oil - is most
likely to continue its weak trend from the previous fiscal year
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Nevertheless, a closer look at the chart of
Market Vectors Oil Services ETF (
reveals that oil services companies might be in for a tough time
ahead. OIH tracks the performance of 26 oil services stocks and
thus provides great exposure to the broad segment.
The chart above represents a one year daily price chart of
OIH. As we can see, after a brief surge upwards initially in
2013, the ETF found a top around the middle of February. Since
then the trading action has been pretty choppy, to say the least
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Although the ETF still continues to be in a long term uptrend
as indicated by the upward rising support line, the short term
picture is pretty bleak. Since reaching the top, the near term
weakness has well and truly crept into the ETF and is seen to
make lower highs and lows.
Furthermore, the recent downward momentum is most likely to
take the ETF further down. In fact the long and short term trend
has caused a triangle formation in the ETF which it has very
recently broken to the downside.
And the downward momentum on this occasion seems to be pretty
strong as the ETF has seen significantly higher trading volumes
(encircled portion in the volumes chart) while the breakout
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Downward pressure in oil prices coupled with a strong U.S.
dollar will surely take a toll on the ETF. Still, after the
recent volatile trading sessions, it is unlikely that the ETF
will plunge very soon.
Instead a more realistic course of action would be a brief
consolidation at current levels since the ETF seems to be quite
oversold. Though we think that the fund could plunge further
after this consolidation period. The same is concurred by the RSI
and Williams R data which show an oversold reading.
As is quite evident, the ETF is extremely correlated with
prices of oil, therefore any weakness in the energy commodity is
likely to show up in the ETF as well. This is particularly
important considering the fact that oil prices have also been
facing downward pressure for quite a long time.
Also, the investment case for oil remains rather bleak in the
near term. This explains that the weakness in the ETF is here to
stay for some more time.
Furthermore, OIH has a Zacks ETF Rank of 3 or 'Hold';
therefore we are not looking for great things from the ETF in the
near term either. The ETF has a 'High' risk outlook as well, so
investors should probably avoid this volatile and uncertain oil
fund for the time being.
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MKT VEC-OIL SVC (OIH): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
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