About the Author

Stephen Oakes is an experienced financial titan from New York who brings Wall Street to Main Street. Over the past 11 years, he has developed and tested the renown, Oakes Momentum System, which uses a unique constellation of technical indicators to find timely buy and sell points. He holds an M.B.A. in the United States (New York) and has studied internationally at the Reims School of Management in France.

See All Posts by This Author

Oil Index is Down but Not Out

November 29th, 2007 • Related • Filed Under

One way to profit from technical reversals…

Whenever oil shoots up and then gives a little ground, the talking heads scream relief. However, if one were to look at a chart of the Oil Index (XOI:AMEX) he or she would notice that we are far from the top. In fact, the recent pullback is only a temporary break from another inevitable rally.

In the chart below, you will find that the index has rolled over in the past six months or so in order to establish a new base from which it can gather enough buying momentum to break out higher.

Oil Index XOI

The two black lines drawn represent the upper and lower support areas from which I expect trading to occur in the months ahead. Once we reach a point where these two line connect, the market will crown either the bulls or bears and beginning moving hard in a more definitive manner.

I’m betting that the bulls are going to pull out the victory for a few main reasons. The first being that the breakout to come more often than not, continues in the trend prior to consolidation. In this case, the Oil Index has been trending to the upside, meaning that we should expect the overall trend to continue.

Another key point to mention is that we’ve had two candlestick “hammer” reversal days (outlined in green). In both instances, support was tested successfully and the bulls rallied to the cause.

It is always important to not trade the pattern, but to wait for breakout verification. In this case, you’ll want to enter into a long position once the index trades above 1,500. No setup is 100% accurate, but if you can reduce your risk by waiting for the signal, you’ll be in a much better situation to lock in gains.

On the other hand, you also have the option of jumping now, seeing that the most recent bullish “hammer” formation has historically signaled great entry points for bottom feeders. If you’d like to jump the gun on this trade, place a protective stop loss at around 1,325. This price area represents a figure that’s just below the symmetrical triangle pattern support line.

Good investing,

Stephen Oakes
Editor, Black Sheep Trader
www.blacksheeptrader.com

Comments are closed.