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OIH Trading Range

 
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arthur
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PostPosted: Sat Apr 23, 2005 12:28 pm    Post subject: OIH Trading Range Reply with quote

Late last week, undervalued stocks became less undervalued, while overvalued stocks became less overvalued. Consequently, I found fewer opportunities to trade. SPX closed the gap at 1,137, last Wed, and there's an open gap at 1,198. It's possible that gap will close within the next month or two. However, next week, SPX may continue the trading range, e.g. between 1,140 and 1,160.

Economic data will be more important than earnings reports. There's fear the economy will slow too much, while inflation accelerates (i.e. stagflation). So, the market will be looking for sustained growth with tame inflation, e.g. 3% real GDP growth with 3% inflation, at annual rates.

Slower U.S. economic growth means slower global economic growth, because many U.S. trading partners rely on exports to maintain their expansions (i.e. export-led growth). So, when the U.S. economy slows, oil prices should fall, ceritus paribus (all else equal). Consequently, OIH (oil ETF) may be more predictable to trade than SPX or other stocks.

The first chart is an OIH daily year-to-date chart that shows greater volatility after the Jan & Feb rally, and a double top at 100.30. OIH made lower lows, recently, and MACD made lower lows and a lower high. OIH closed at about the 50 day MA Fri, which is roughly the middle of the recent trading range, between 90 and 100. Volume is lower on up days.

The second chart is an OIH weekly chart over the sustained uptrend. MACD suggests OIH will consolidate for several more weeks, before moving one way or the other, and may test the uptrend line, currently in the low 80s. There's greater weekly volatility, and volume is higher on down weeks.

The third and fourth charts are monthly charts of OIH and Oil Price. OIH has generally maintained the 10 month MA over the sustained rally. Both the RSI and Oscillator (ULT) were severely overbought last month, and volume has been heavy so far this month and last month, which may indicate a topping process. The Oil Price chart shows an all-time high at 58.20 this month, and a close at 55.39 Fri.

I've noticed, OIH tends to lead oil prices. So, if oil prices fall next week, OIH may fall lower anticipating even lower prices. OIH's 10 month MA at 86 is a strong support level, and 100 (double top and multi-year resistance) is a strong resistance level. So, there may be excellent opportunities to make big gains quickly within the volatile trading range.

Economic reports next week are: Mon Existing Home Sales, Tue Consumer Confidence and New Home Sales, Wed Durable Goods Orders, Thu GDP, Chain Price Deflator, Unemployment Claims, Fri Personal Income, Personal Spending, Employment Cost Index, Michigan Sentiment, Chicago PMI.

The Durable Goods Orders report is important, because it's a leading indicator of manufacturing activity. The GDP and GDP Chain Price Deflator reports may be big market movers, because they'll be the first reports on first quarter output and inflation. Slower GDP growth with a higher Deflator, for example, will be negative. The economic reports Fri are also important.

Notable earnings next week include:

Tue: AXP DD AMZN GLW SLB HLT SE LMT MSO RFMD ABGX CVTX CRA PDG LVLT SLE WWY.

Wed: CL BA BIIB NEM PD SBUX VZ ASKJ SEBL JDSU LSI SOHU NANX CEGE OPWV BHI KMG MCHP.

Thu: MSFT XOM GP K DCX AMCC BMY GSK CELG AZN KLAC BR ABX PAAS AET BDK MLNM WMI RTN ZEUS PBI SIRI NXTL.

Fri: CVX AU ADM.

There may be opportunities to make big gains on earnings with May options.






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