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TECHNICAL ANALYSIS


AMEX Oil Index Coming Up On Resistance

08/21/03 08:04:33 AM
by Kevin Hopson

The AMEX Oil Index is quickly approaching key overhead resistance but the longer-term picture still indicates higher prices to come.

Security:   XOI
Position:   Accumulate

I have touched on the AMEX Oil Index (XOI) several times over the past few months. Most recently, I said that the downside potential appeared to be limited and that long-term investors should look to accumulate shares of these stocks on further weakness. Since my last article (Traders.com Advantage, 08/04/03), the index has proceeded to move higher. Though the XOI failed to test support around the 445 level, which was my ultimate downside target, the index did put in an expected bottom reversal.

Now that the XOI has rebounded, the index is coming up on key resistance in the 485 to 490 range. More specifically, notice how the black median line and the top gray parallel line are converging around the 485 level. Additionally, June's downtrend line (top green parallel line) is coming into play around the 490 level. Given the confluence of resistance here, the upside potential could be limited in the near-term.

Graphic provided by: Stockcharts.com.
 
However, regardless of whether the XOI breaks resistance in the 485 to 490 range or proceeds to pull back, I would continue to accumulate shares of integrated oil companies. The reason being that the XOI appears to be in the third wave (second leg up) of a long-term uptrend. In other words, the index should eventually move above June's high just below the 500 level. As a result, I would consider a short-term pull back another excellent buying opportunity. More specifically, the 473 level - site of the index's 50-day moving average and the gray median line - appears to be a good entry point.



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: hopson_1@yahoo.com

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