Technical Analysis Amex Oil Index (XOI)

Short-term Considerations for the Natural Resource Stocks
Clif Droke

While there is some short-term turnaround potential in some key gold stocks, there is even more technical rally potential in the near term in many of the leading oil/gas equities. After that big decline in September following the August topping process and negative oil/gas correlation many oil and gas shares appear to have built enough of a short-term base to attempt the first relief rally since the September decline. As with the gold stocks, the first line of resistance for the oil stocks is the 30-day moving average. In the Amex Oil Index (XOI) this intersects the 1075 level with the XOI currently just beneath this as of Wednesday, Oct. 11. That level shouldn’t prove to be too difficult to overcome. The real test of resistance for XOI is the 1125 level where the 60-day and 90-day moving averages pinch together in the daily chart. The 1125 area also represents the mid-point of the single biggest 1-day decline from September’s correction and therefore adds to the technical significance. It will be worth monitoring on XOI rallies in the near term.

Our proprietary internal momentum indicators for the oil stock sector (OILMO) show that in the short-term internal momentum is reversing from down to up, particularly on a 20-day rate of change basis. This should provide the oil stocks with an undergirding of support as the recent basing patterns firm up and the next technical rally attempt is made. Some individual energy stocks worth watching for rally potential, based on chart considerations, are Sunoco (SUN), Valero Energy (VLO) and XTO Energy (XTO).