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Yola Edwards

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Oil's well that ends well

Yola Edwards

During times of turmoil in global financial markets, investors turn to physical assets and flee risky assets such as equities. Will this episode of turmoil be temporary? Only time will tell and taking refuge in oil and the oil related sector may be a prudent investment strategy.


It appears that the price of crude has found a bottom as it held at the 90-week moving average when it touched an intra-week low at $90.66 (U.S.) for the week of September 14 and over the past three weeks it has formed a morning star candlestick bottoming pattern. The weekly upper Bollinger band has turned positive. Both the MACD and RSI are at oversold levels, although they haven't given buy signals just yet, but the RSI has turned positive. A close above $113 would suggest a continued rally to about $119 where December oil futures will encounter first resistance. It appears that the slid from the July high of $148.55 is over and although rallies from current levels will be impeded with overhead resistance causing a rising staircase type advance, a retest of the highs should be expected over the next three months.

light sweet crude oil dec 2008

However, unless you can take delivery of a tanker of crude you may consider investments in the energy sector in keeping with your own risk tolerant profile during this unprecedented environment.

A potential investment candidate may be Suncor Energy which is an integrated energy company focused on Canada's oil sands, as well as natural gas production. Additionally Suncor has investments in wind power and ethanol production.

The weekly chart indicates that the stock found support at the 200-week MA last week, but is still struggling to find direction. The current weekly candlestick is a spinning top, but the two-week candlestick pattern is developing into a bearish harami suggesting a retest of the $42.40 support level may be ahead. Additionally, the MACD continues to issue a sell signal although it is oversold. As such the $43 area would be considered a buying opportunity and would complete the A-B-C type correction from its June $73 high. Once the rally resumes the stock will find first resistance at $54 but a successful close at $54 would suggest a rally to $60 over the ensuing three months.

sept 24 2008 suncor energy inc

Alternatively, you may consider Husky Energy Inc., which is currently engaged in exploring for natural gas off shore Labrador. It has been 25 years since anyone has drilled off of Labrador's shoreline where five significant gas discoveries were made, but drilling was abandoned due to lack of infrastructure to get the product to market. The company believes "new technological improvements will allow for more cost-effective operations in the icy waters."

The share price has been trending in a positive trend channel for the past two years. The MACD which is still issuing a sell signal is near a turning point from an oversold area suggesting that the stock may be ready to challenge its recent high. Additionally, the RSI has diverged positively as the share price formed a double bottom since June. It appears that the stock is ready to move higher from current prices and rally to the double bottom pattern's technical measurement of about $59 over the next three months.


Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.

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