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Spinnaker Exploration Coming Up On Significant Resistance

05/13/03 08:01:15 AM
by Kevin Hopson

Spinnaker Exploration looks to have completed the final leg of its one-year downtrend. With the technicals indicating a potential downside reversal in the near-term, investors should consider future weakness as a good buying opportunity.

Security:   SKE
Position:   Accumulate

The last time I touched on Spinnaker Exploration (SKE), the stock was putting in a potential fifth wave in its long-term downtrend. More specifically, Spinnaker appeared to be in the final leg of its one-year downtrend and the large declining wedge formation (which normally breaks to the upside) supported my theory that there would be a significant bottom reversal in the stock. As I anticipated, this occurred in late March.

However, as you can see in the chart, the stock is now approaching a significant confluence of resistance. For example, Spinnaker is forming a rising wedge, which is usually resolved by a break to the downside. Furthermore, the stock's 200-day moving average ($22.97), the 38.2 percent retracement level from the Aug. 2002-March 2003 decline ($22.87) and the median line of the gray pitchfork are all converging around the $23.00 level. Combined with the currently overbought conditions, I would consider this a major resistance area and a potential turning point in the stock.

Graphic provided by:
However, since I believe we have already seen a major bottom in the stock price, I would look to accumulate on weakness. More specifically, the $19.00 to $20.00 range, site of Spinnaker's 50-day moving average ($19.35) and the stock's recent quadruple top breakout ($20.00), should act as significant support in the near-term. I feel that both short-term traders and long-term investors will be well-rewarded by doing this.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
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