Top Down Analysis of XOI (Oil Index)

Trader’s I have some good stuff for you tonight.  I am a firm believer that the more you know… well the more your account can grow.  Tonight’s analysis is something you should know and know well.  This analysis will show you how you can beat most money managers.  So let’s dive into the Brown Report.

First let’s talk about what the top down approach is.  If you are going to put money to work, you not only want to put it to work in a winning stock, but you want to put it to work in a winning industry or sector.  The top down approach shows how to search for winning sectors, then look into the sub sector at the individual stocks that are performing and then put money to work.  tonight we will be looking at the XOI (Oil Index).

Below is a picture of the XOI (Oil Index).  If you have been following the Brown Report you already know that this is a squeeze play waiting to happen… a classic “pinch and pop.”  The XOI has been trading in a tight range since late October (for the newbies see grey shaded area on chart).

XOI (Oil Index)

So now that we know the XOI (oil index) is setting up for a nice pinch and pop let’s look at some of the components that make up the index.  Here’s where the top down approach comes into play.  If the index is forming a squeeze play i.e. coming into a tight trading range ( the pinch) and then breaking out ( the pop) then it would only make sense that one or more stocks in the index are also trading in a tight range getting ready to break out.  Below I took the liberty of listing what stocks are in the XOI for you.

Notice ticker symbol COP (Conoco Phillips) is in this index, see our previous blog analysis on this stock and you will see how on target that analysis was.  I won’t go through each stock in the index (I’ll leave you some homework to do) but I just want to point out COP and also APC (Anadarko Petrolium).  The Chart on APC speaks for itself.  It is a mirror of the XOI index and just one of many jewels like COP that was found from the top down analysis.  Also you may notice in my chart we observed the volatility squeeze on 2/2/12 (I promise I did not back date the annotations lol) we had this one on our radar 4 days ago before the pop happened.

“APC” a mirror of the “XOI”

Food for thought as I wrap up this blog.  Nothing against fund managers and mutual funds but by law unless you are a sophisticated investor they have to put your money into a “safe” investment which means they buy an index or a fund (hence mutual fund) that is a collection of stocks  in which some go up some go down and some do nothing which usually gives you an “average” return because you earn the average of the index or fund.  As an individual trader you can look into the index, do your own analysis, pick the winners and give yourself an above average return.  Just something to think about.  Happy Trading.

***Also if you like this analysis please leave a comment or click the like box and feel free to sign up for free to follow our blogs by clicking the follow button at the top and share with other traders.***  Trust me they will thank you for it 🙂

J.Brown (stocks & options analyst)

follow me on twitter @brownreport

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