After Friday’s $2.29 post-holiday trend-day gain of 3.40% for the Oil Service Holdrs ETF (OIH), the Nymex light crude contract is also up nearly 7% overnight on increased violence in the Middle East. Is there a potential gap-open short opportunity here? While OIH has the potential to set up a bullish four-week inverse head-and-shoulders base under the 200-period moving average resistance on the 60-minute chart (see below), this ETF remains in a solid downtrend on the daily chart; coupling the downtrend on the daily chart with the potential for a 7% gap-up open on the Nymex Light crude contract, along with OIH's history of poor performance after a post-holiday trend day up, we see the potential for a good short-term shorting opportunity on a bullish move by OIH into the $75.75 area.
Q: Over the course of OIH's history, how does the ETF perform after recording a trend-day up immediately following any holiday?
A: According to the 10 previous occurrences of this event, EventEdge indicates that OIH has shown a very strong bearish edge that peaks two trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Friday, Dec. 26) is Tuesday, Dec. 30. OIH declines in 100% of the cases (10 of 10) by an average of 2.2% relative to the close on the event date. The overall return of the 10 cases is -2.2%, which, based on the close of OIH on the event date ($69.66), provides a target price of $68.13.
As additional trading vehicle for capturing the potential of this trade, see ticker symbol DUG for the ProShares 2X UltraShort Oil & Gas ETF.
To view and modify the event parameters defining this study, click here to launch the EventEdge® tool.
Mr. Jay Pasch is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.