Quite simply, the recent decline in the AMEX Oil Index (XOI) appears corrective in nature; and thus one would want to be long these shares at this time as the risk-reward parameters are now favorable.

If past is prelude, and although it is not perfecta simple rhyme will do; the current correction is testing the sharply rising 110-day moving average, which when coupled with the lower 40-day stochastic level has provided excellent buying points over the past several years. If this test is successful as we expect; then a test of the highs is forthcoming. Therefore, we are long shares such as Exxon (XOM) and Chevron (CVX); but looking to add more and add oil service shares as well.

Chip Anderson
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