|The AMEX Oil Index (XOI) rebounded last week after hitting a new monthly low in the 430 to 435 range. However, the XOI failed to push through the 465 level, which would have been short-term "bullish" for the index. As you can see in the chart, 460 is the site of September's broken support levels (failed double bottom). It is also the site of the XOI's former uptrend line, which had provided short-term support for the Index since July's low.|
|Just to note, support levels tend to act as resistance once they are broken. The reason being that those investors who bought at a prior support level (believing it would hold) are looking to break-even once the price returns to that level. In other words, there is usually selling pressure at prior support levels. Since the XOI failed to take out the 465 level, the path of least resistance is still down.|
|Figure 1: Daily chart for the Amex Oil Index.|
|Graphic provided by: StockCharts.com.|
|Furthermore, even if prices do turn up, resistance around the 465 level could prove more difficult the second time around. The reason being that the index's 50-day moving average - which has capped prices the last several months - is converging just below the 470 level. If the XOI can close above its declining 50-day moving average, the Index could be poised for further gains.|
|However, it looks as though the Index is setting up to test a double bottom - 430 to 435 range - in the near-term. If this area of support is taken out, a further test of July's low in the 415 to 420 range is likely. As a result, look for additional selling pressure if the XOI touches the 430 and/or 415 levels on an intraday basis.|
Date: 10/03/02Rank: 5Comment:
Date: 10/23/02Rank: 5Comment: the explanation of support/resistance was priceless. Very clearly defined.