Out of Energy To Move Higher?

Yesterday, I gave several reasons why I believe the Energy Sector could begin a relatively sharp correction.  I am following up with some individual stocks which I believe are overextended and could turn down if the oil sector rolls over.  I am not recommending short sales of these stocks, but rather, offering a warning to traders that the trends are stretched and are hitting "hidden" resistance from the top of the rising trend channels. 

First, I want to highlight the Energy Sector Bullish Percent chart, which measures the percent of stocks on a buy signal according to point and figure analysis.  Currently, 96 percent of the S&P Energy Sector stocks are on a buy signal.  The last time the sector was this overbought in March of this year (the number 3 on the chart represents the month), the Oil Services Index and S&P Energy SDRS began a two-month, 16% correction.   

The following charts all have a similar theme.  All are beautiful stock charts in strong rising channels.  However, all are starting to stall at the upper trendline of the channel.  Valero (VLO) and Chesapeak Energy (CHK) are rising on extreme volume spikes, indicating that speculative activity is increasing and making the stocks vulnerable to a sharp pull back.  Two other energy stocks, Anadarko Petroleum (APC) and Nobel Energy (NBL), have risen on weaker volume and are also very overextended.   

The one chart that does not look like the others is Schlumberger (SLB).  The stock is an institutional investor favorite because it is one of the few large-cap oil services stocks that is liquid enough for large funds to build a position.  The stock is not nearly as over extended as some of its smaller cap peers but the stock does look vulnerable to a correction.  The Chaikin Money Flow and Accumulation Distribution line show that institutions haven’t bought into the last rally.   If you believe institutions represent the "smart money," the mixed volume trends show they are not chasing the stock higher like traders and retail investors.   

Again, my intent is not to short these strong momentum stocks.  Rather I want to  warn traders that the first dip might not be a buying opportunity because energy stocks are extremely overextended, sentiment is extremely positive and a more serious correction could be in the works.