Warning: These Stocks Are Overbought and Extended to the Upside

There are more gains ahead for the oil sector.

That may seem a bit strange since so many analysts have turned bearish on oil and oil stocks. Heck, even Barron’s recently predicted the gooey black stuff would drop toward $75 per barrel.

[ad#Google Adsense 336×280-IA]So far, though, the market isn’t paying much attention to the bears…

The price of West Texas Intermediate (WTI) Crude oil closed at $101.06 per barrel on Friday.

That’s up about 3% this year.

Oil stocks are doing well, too.

The NYSE Oil Index (the “XOI”) broke out to a new 52-week high last week.

Take a look…

The oil index, along with oil giants like Chevron (CVX) and ExxonMobil (XOM), suffered some damage right after we pointed out a potentially bearish pattern forming in January. But after the sector reached our downside target, most oil stocks rebounded and are now trading near new all-time highs.

But some of the best-performing stocks in the oil sector – like Baker Hughes (BHI) and Halliburton (HAL) – are overbought and extended to the upside. They need a rest. And that potential pause in the action may be what has turned so many analysts bearish on the sector.

However, many of the lagging oil stocks are just starting to perk up. Stocks like Ensco (ESV) and Oasis Petroleum (OAS) – which started the year off in bad shape – are showing large percentage gains over the past few weeks.

It is the proverbial passing of the baton… lagging oil stocks play catch-up while the leaders take a break. And that’s the sort of action that should keep the oil sector moving higher for the next couple of months.

Traders looking to invest in the energy-stock rally should look for beaten-down energy stocks that are just starting to play catch-up. That’s where you’ll find the best low-risk, high-reward setups in the sector.

Best regards and good trading,

Jeff Clark

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Source: The Growth Stock Wire