The Oil Service HOLDRS Trust (AMEX: OIH, Stock Forum) looks to have bottomed, which means that oil prices are not likely to fall below $50-$60 barring a total collapse of the global economy.
The oil sector seems to have found some balance of late, with the bellwether oil service sector starting to show signs of forming a base.
Whether this is the all clear signal or not remains to be seen. Yet, the fact that OIH has not made a new low lately despite fairly weak oil prices suggests that the smart money is moving into a sector whose future long-term prospects remain fairly attractive.
The oil service sector is usually the most sensitive branch of the oil patch, as exploration and expensive offshore activity is often cut before other types of operations. So, despite the important role of these companies, when things get tight, they are some of the first companies to feel the pinch.
They are also some of the first stocks in the energy patch to start to move higher when things start to stabilize. And that may be what we're seeing now, as OIH is off of its mid-October bottom, and holding above its 20-day moving average.
A move toward 100 is quite possible in the next few days, if cold weather starts to affect the energy complex. What happens after that is anyone's guess. Yet, as long as there are no new lows, the basing process will be intact.
And that's important for those who have a multi-year time horizon.