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TECHNICAL ANALYSIS


Key Support For The AMEX Oil Index

05/11/04 09:06:21 AM
by Kevin Hopson

Limited downside potential offers a good buying opportunity in integrated oil companies.

Security:   XOI
Position:   Accumulate

The AMEX Oil Index (XOI), a price-weighted index of integrated oil companies, has been on a monster run since March of last year, appreciating over 50 percent during this time (from low to high). During strong uptrends like this, healthy corrections are usually in order. As you can see in the six-month chart, the index has proceeded to pull back, as broad market weakness has spurred significant selling pressure in these stocks recently. However, the index is close to testing a key support area, which could provide an excellent opportunity to go long.

Notice how the index had been trading in the bottom half of the black pitchfork since late March. When prices breached the bottom parallel line early this week, it likely prompted investors to sell. Unfortunately for them, the red median line acted as support, possibly making them think twice about their decision.

Graphic provided by: Stockcharts.com.
 
Even if prices proceed to move lower from here, the downside risk appears to be minimal because there is a significant confluence of support in the 580 to 585 range. More specifically, this is the site of the green median line, the index's 100-day moving average (584) and the 61.8 percent retracement level (583) from the February low to the May high. The red median line - which is acting as near-term support - falls into this range as well. As a result, I would look to accumulate shares of integrated oil companies on a potential pullback to this support area.



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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Date: 05/18/04Rank: 5Comment: 
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