Another Intermediate Top For Energy Stocks On The Way

From all appearances, we will get an intermediate term top in energy stocks by next week.   I think earnings season will be the catalyst for an Energy stock sell-off.  Traders will use the earnings season as an opportunity to take profits and rotate into technology stocks. 

I say this for several reasons 1) the Weekly OSX is on an 8 of 9 DeMark Sequntial indicating a potential top next week; 2) the chart for Crude oil is also hitting a weekly 8 of 9 sequential and forming a bearish Wolf Wave; 3) energy stocks as measured by the bullish percent index are overbought; 4) earnings expectations have risen dramatically and any shortfalls will cause stocks to turn down; 5) technology stocks have found a bid and hot money should rotate out of energy into tech. 

The Weekly OSX is on an 8 of 9 count.  9s have had a pretty good track record of marking tops and the OSX should hit a 9 next week. 

Chart courtesy Bloomberg

The OSX Daily Sequential hit a 13 last week.  While its not indicative of a perfect top, it’s a sign that the trend could be coming to an end.

 
Chart courtesy Bloomberg

The Daily Sequential Crude oil chart hit a 13 on Monday. 

Chart courtesy Bloomberg

The Weekly Crude Oil Sequential chart will hit a 9 next week.  In addition it is once again forming a bearish wolf wave.  While this pattern didn’t work last time it formed earlier in the year, its still a valid pattern to trade.  The pattern indicates that oil should trade down to $45 in the next several months. 

Chart courtesy Bloomberg

The S&P Energy Sector Bullish Percent Index (which measures the percent of stocks on a point and figure buy signal) is moving into the overbought range.  While there’s no real danger until the oscillators turn down, it is a warning sign. 

Chart courtesy Stockcharts.com

Finally, the Semiconductor Index has broken out to the upside and will probably attract the hot money which will rotate out of energy.