Oil stocks are on the verge of a major buy signal.
I know it seems absurd.
Who would dare think of buying oil stocks when the price of oil is trading at its lowest price in 11 years, and when leveraged oil companies, like Swift Energy (SFY), are filing for bankruptcy?
But one of my most trustworthy technical indicators is telling us to get ready to buy oil stocks.
Take a look at this chart of the Energy Sector Bullish Percent Index (“BPENER”)…
A bullish percent index (“BPI”) measures the percentage of stocks in a sector that are trading in bullish technical patterns.
[ad#Google Adsense 336×280-IA]A BPI is typically overbought when it rallies above 70.
It’s extremely overbought above 80. And it’s oversold when it drops below 30.
Buy signals occur when a BPI drops into oversold territory (below 30) and then turns higher.
Sell signals happen when it rallies above 70 and then turns lower.
The red circles on the chart above represent sell signals.
The blue circles are buy signals.
Here’s how those signals line up with the action in the Energy Select Sector SPDR Fund (XLE) – an exchange-traded fund of energy stocks – over the past year…
The BPENER buy signals did not always mark the exact bottom for the oil sector. For example, traders who bought XLE following the buy signal in early August suffered through an additional 10% decline before the sector finally hit bottom. And the indicators can whip around – turning higher, then lower, then higher again in a matter of days.
But over the past year, if you bought XLE when the BPENER triggered a buy signal and then sold the when the indicator got overbought by rallying above 70, then you made money.
As you can see from the charts above, the BPENER triggered a buy signal in mid-December, near the absolute low for XLE. The signal has been choppy so far, and XLE hasn’t gained much ground. But based on the action following all of the previous buy signals, the oil sector should be trading higher several weeks from now.
So it’s time to start thinking about buying oil stocks.
Best regards and good trading,
Jeff Clark
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Source: Growth Stock Wire