Re: OIH ... A lesson in chart reading for those who may be interested.
When I look at a chart, I'm not looking to predict future price movement. Nobody can do that with consistency. What you want to look at is the trend, price support (which is where demand is expected to come to market) and resistance (which is where supply is expected to come to market). You should be looking to get the odds in your favor to support the direction of where you want price to go.
In looking at OIH, for an example of the sector, I see where price has steadily climbed over the last couple of months. Over the last two months, volume has been below average, yet price continues to climb. There is a very good reason for this. It has to do with supply vs. demand.
Look at a weekly chart of OIH. In September of 2008, the bottom fell out and OIH dropped from $150 to $60. It was a steep drop. Because the price drop was so steep, there is very little overhead supply waiting to come to market in that price range.
I define overhead supply as people who bought at higher prices, are still holding on to their losing position and praying for price to come back up to their entry level so they can sell and get out even, making them look better in the eyes of their spouse, who is probably ticked off at the loss in value of their portfolio. I'm sure some of you can relate. <g>
In looking at the chart below, note the long lateral base that formed between June 07 and Sept 08 (and I'm only going back two years). The trading range during that time frame was between $225 and $142. Anyone who bought during that time frame is more than likely ready to sell if price can come up to their entry level. Absent any market moving news,, OIH should be able to continue higher, because there's very little overhead supply between the current price of $106 and the bottom of that base $142. When price gets to $142 the odds would then increase dramatically for a price pull back due to the amount of overhead supply that formed over a long period of time and will probably come to market. We'd have to have terrific news to create enough demand to offset the overhead supply at that price level due to the long base.
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