Just over three years ago, the VanEck Oil Services ETF (OIH) was trading at all-time lows…
However, as the oil price steadily recovered from its pandemic low, OIH rallied.
From March 2020 to its January 2023 high, OIH surged a massive 410%.
When we checked in on OIH just after that big run (red arrow in the chart below), the ETF looked to be setting itself up for another run higher.
But momentum dried up, and OIH instead rolled over and fell. It bottomed out in late May.
So with OIH again rallying and trading close to its January high, today I want to see what’s coming next…
Stuck in a Sideways Pattern
On the chart below, you can see OIH’s big rally from late September into November last year.
After a pullback, OIH then rallied from December till its peak on January 18…
VanEck Oil Services ETF (OIH)
Source: eSignal
When we looked at OIH in January, OIH was building short-term support. The Relative Strength Index (RSI) had tested and held its support level multiple times too.
Yet for OIH to rally from there, both of these support levels needed to hold. The RSI also had to stay in the upper half of its range…
However, the RSI fell into its lower range, where it stayed right through June.
That strong decline in buying momentum saw OIH fall heavily too.
You can see how sharp that sell-off became by the steep angle of the 10-day Moving Average (MA, red line) as it crossed below the 50-day MA (blue line).
Adding to the bearish sentiment, both MAs also tracked lower.
OIH bottomed out along with a converging pattern (red lines) between the RSI and OIH stock price – a common reversal pattern.
However, after an initial bounce, OIH’s rally stalled.
Although in its upper range, the RSI became stuck in a sideways pattern (orange circle) as it regularly tested support (green line).
Take another look:
VanEck Oil Services ETF (OIH)
Source: eSignal
In late June, the RSI eventually broke higher in its upper range. With that, its recent rally got underway.
It was a similar pattern with our two MAs.
After crossing above the 50-day MA, the 10-day MA initially struggled. However, the 10-day MA then accelerated above the 50-day MA as buying momentum (RSI) started to return.
Yet that surge pushed the RSI into overbought territory (upper grey dashed line). OIH’s rally is coming under pressure.
So what am I expecting from here?
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Emerging Down Move
The RSI recently made an inverse ‘V’ (right red circle). So what happens next with the RSI will be key…
If the RSI continues to track lower, then we can expect OIH to fall. The RSI tracking back toward support could see OIH trading back around $310.
However, it is still early days with this emerging down move.
If the RSI tracks sideways – as it did when it went into overbought territory (left red circle) back in October/November last year – then it could take longer for OIH’s rally to reverse.
The other thing I’ll keep a close watch on is our two MAs…
As I mentioned, the 10-day MA has recently been accelerating above the 50-day MA. For any down move to gain traction, we’ll need to see the 10-day MA roll over and track back toward the 50-day MA.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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