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Hi, My name is Justin and I‘m with Commodity Trading Research, today were reviewing our recently published article…

Little Known Technical Secret Suggests A Bottom Is Near For Oil Stocks…

No doubt about it, the past three months have been a disaster for oil stocks. You’ll be hard pressed to find the stock of an oil exploration and production name showing

positive performance since early May.

One of the best ways to measure overall oil exploration industry performance is

through the SPDR Oil & Gas Exploration & Production $XOP.

This widely followed ETF holds oil producing names like Newfield

Exploration $NFX, Exxon Mobil $XOM, and EOG Resources $EOG.

One look at a chart of $XOP tells you all you need to know…

As you can see, after a weak May the ETF went into a free fall in June and July.

The recent downturn has $XOP down 15% on the month, 28% lower on the quarter, and weaker by 21% since the start of the

year.

Clearly, oil stocks have been sent into the gutter in recent weeks.

Not surprisingly, sentiment towards oil stocks has grown highly pessimistic. It

seems just about everyone has thrown in the towel.

But take a look at this…

A highly reliable technical indicator is showing an unusual pattern, which

suggests a bottom may finally be near for oil stocks.

Let me explain…

Ask anyone that has studied technical analysis extensively and they’ll likely tell you the Relative Strength Index (RSI) is the best momentum indicatoravailable.

Developed by J. Welles Wilder, the RSI measures the speed and change of price

movements.

In a nutshell, the RSI index is great at indicating overbought and oversold

levelsin any market.

Here’s where it gets interesting…

Every once in a while the RSI gives a very accurate signal that proceeds a change of

trend.

Let’s look back to that chart of $XOP so I can explain…

Notice that in early August the $XOP made a new low (upper red line). But at the same time, RSI did not make a new

low (lower red line).

Remember, RSI measures the speed and change of price.

So when RSI did not confirm the new low set by $XOP in early August it’s a great sign ofselling momentum decreasing to

the point where a reversal to higher prices is likely.

This rare technical phenomenon is called a divergence. While no technical indicator

is 100% accurate, RSI divergences are darn close to it. When you see these

patterns develop, you best sit up in your chair and take notice.

Given the RSI divergence pattern, extreme oversold nature of oil stocks, and severe pessimism towards the industry, the odds are growing quickly for recovery rally in

oil exploration stocks.

How do you capitalize on this situation?

The easiest way is to simply buy $XOP, or its big brother the Energy Select Sector

SPDR $XLE. Both $XOP and $XLE hold a wide basket of oil stocks and are

exhibiting the same RSI divergence pattern.

But just to be safe, I also suggest you place a stop-loss order below the early

August low in $XOP or $XLE. If the bullish RSI divergence pattern doesn’t pan out, you’ll want to cut your losses

quickly and efficiently.

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