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Falling Wedge Formation for the AMEX Oil Index

06/23/03 01:21:52 PM
by Kevin Hopson

The AMEX Oil Index looks to be completing a falling wedge formation, which would indicate a potential upside breakout in the near-term.

Security:   XOI
Position:   Accumulate

The AMEX Oil Index (XOI), a price-weighted index of large-cap integrated oil companies, appears to be in the final stages of a falling wedge formation. This is a pattern of lower highs and lower lows. However, unlike a declining channel, the top trend line (lower highs) tends to be at a steeper angle than the bottom trend line (lower lows). Additionally, this pattern is often resolved by a break to the upside.

The most logical reversal point would be the index's 20-day moving average (480.29). More specifically, this moving average has acted as ultimate support for the index since May's breakout. Because the 20-day moving average is now coming into play and the falling wedge formation is contracting (trading range is getting tighter), I think the index could see a reversal to the upside very soon.

Figure 1: Daily chart for the Amex Oil Index ($XOI)
Graphic provided by:
If so, the 505 to 515 range looks to be a good price target, as this is the site of last August's high and the top parallel line of the gray pitchfork. If you think back to my prior articles on the XOI, you will remember that I considered May's breakout to be the end of the index's two-year downtrend. Since I believe we are in the beginning stages of a long-term uptrend and the technicals point to further price appreciation in the near-term, I would look to accumulate shares of integrated oil stocks on weakness.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
E-mail address:

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Date: 06/26/03Rank: 5Comment: 

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