Black Gold

Well we have a breakout in the oil patch - I don't know how long it will last or even why it has happened - remember I use charts exclusively because I hold to the rule and the rule is - nobody knows nothing - including me. Consequently the bobbleheads on bubblevision can talk talk talk all they want and the many guru's who write BLogs can write all they want but price is king. And here is what price is saying about oil.



So now that it is broken out it is time to buy.

Not advice - just a guess - but Jimmy Crack Corn Pone wishes he had guessed it first - (complete with sound effects).

Oil? or No Oil?

Cal Trader writes that he thinks oil is becoming a buy. I do too and have talked about it several times this past week or so - but I bring it up again because he focused on CHK (among others) and CHK just happened to show up on my newest favorite filter - Donchian Channels - this weekend. Here is what that looks like -



I showed you OIH earlier today on the weekly charts - here it is on the daily's with Donchian Channels



And then XLE from the same space -



The number one stock coming out of the Donchian Channel this weekend was HAL and it too is part of the energy space and it is a prominent (top 10) member of both XLE and OIH. Here is what it looks like -



And yes, I know grasshopper - they all look exactly the same. That is probably not an error.

Now I've left you an excrutiatingly difficult question to answer - which one to play?

Well there is no simple answer but there is an answer -



Let's say that your account can only buy 100 shares of any of the 4 issues - you would go for the one that would pay the most in the shortest time which, based on the average true range would be OIH. But otherwise let's say that you have 29000 bucks and you will use it all to buy as many shares as possible of one of the four - in that case you would go with HAL. That's because simply based on the numbers of shares and the expected return (ATR) you would achieve a higher net with HAL. OIH of course would be in second place.

Well that was easy wasn't it - actually there are some other considerations such as that you might be better off with a fund rather than an individual stock and so on and so forth. So actually you would be best served by reviewing your circumstances at the time of the buy and acting appropriate to your situation.

This is not a recommendation to buy any stock - it is simply a discussion of one sector and a lesson in how stocks reflect ETF's or vice versa.

HOLDRS

These "mutual funds" or ETF's invented by Merrill Lynch are useful for determining investment vs trading targets over the next whenever. HOLDR stands for Holding Company Depositary Receipts and each fund contains the big movers in that particular sector.

Remember a couple of weeks ago I said to keep an eye on the oil industry? Well here is the current weekly chart of the Oil Industry HOLDR (OIH).



You can see that oil is bouncing off the 90 period EMA even now and that, based on the past performance, seems to be a good thing.

Then some time ago I compared hardware to software in the computer industry and used the SMH/SWH as the basis - take a look now. First SMH -



And then SWH -



I think looking at these two shows that software is a bit overbought perhaps and the hardware sector might be looking for a bid.

The point being that you can use the HOLDRS to inform your investing. Set up a watch list and look at them once a week or so. I know one thing - I think if I were holding software I'd be looking for a place to exit and if I was thinking about buying some hardware I might proceed with the purchase - stocks that is.

If you are really interested in HOLDRS go to the AMEX site (amex.com) and click on HOLDRS in the left window. That will give you a list of them. You can then review them individually.