How to Trade the Big Swings in Oil

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Oil has been particularly volatile lately.

From June to September, West Texas Intermediate (WTI) crude rallied by 33%.

But after hitting its peak on September 27, the oil price dropped sharply, losing around 13% in just over a week.

Despite these big swings, oil is currently trading around the same level it was 12 months ago.

And this wild ride caught up the VanEck Oil Services ETF (OIH) in its action. OIH’s holdings include oil field service companies like Halliburton (HAL) and Baker Hughes (BKR).

After oil’s recent big swings, today I want to check out what’s coming next for OIH…

Three Phases

Looking at OIH below, the 50-day moving average (MA, blue line) highlights three distinct trends…

• On the left side, the tail end of OIH’s rally began in September 2022.

• After that, you’ll see the pullback from March to June.

• Then, the rally on the right side shows OIH’s massive 48% gain in just a few months.

VanEck Oil Services ETF (OIH)

Source: eSignal

Within these major moves, the 10-day MA (red line) has seen lots of smaller swings, too.

These back-and-forth moves coincided with changes in momentum, which you can see in the relative strength index (RSI) in the bottom half of the chart.

But I want to concentrate on June.

That rally got underway with the RSI initially breaking up through resistance (green line). It accelerated as the RSI climbed inside the upper half of its range.

But growing divergence (orange lines) between the stock price and the RSI (making higher highs and lower highs, respectively) eventually led to a reversal.

Then, the RSI tested and held support in August. This formed the base for OIH to rally…

But this time, the RSI formed an inverse “V” and retraced from overbought territory (upper gray dashed line). That caused OIH to lock in and retrace from its peak at “A.”

Momentum fell through September, shown by the RSI sinking from overbought to near oversold territory (lower gray dashed line). That saw OIH lose 13% before it formed a trough at the start of this month.

So, with OIH trying to break higher, what am I looking for from here?

Bullish Signals

On the chart, you can see that the RSI has recently broken up through resistance.

Take another look:

VanEck Oil Services ETF (OIH)

Source: eSignal

So what happens next will be key.

If the RSI can gain a firm footing in the upper half of its upper range, that will continue to drive OIH higher.

The next test for OIH will be to take out its recent high at “A” ($364.08).

Another bullish signal is that OIH recently closed above its 50-day MA.

If the 10-day MA next crosses above the 50-day MA and starts to accelerate higher, it’ll add further evidence of OIH resuming its uptrend.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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Do you think oil will be able to reach a new high? Let us know at [email protected].