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Nexen's Channel Breakout

05/19/03 10:59:21 AM
by Kevin Hopson

Nexen Inc. (NXY) had been stuck in a seven-month trading range but the recent channel breakout now indicates higher prices in the long-term.

Security:   NXY
Position:   Accumulate

Nexen Inc. (NXY) is engaged in the exploration, development, production and marketing of crude oil and natural gas, as well as alternate fuels and chemicals. The stock had been stuck in a seven-month trading range between $20.00 and $22.40. However, Nexen has now broken out of this trading range, indicating higher prices in the long-term.

There were two things that indicated an eventual upside breakout from this trading range. First, notice in the chart how the moving average convergence/divergence (MACD) recently put in a higher high while the stock price put in a lower high. This is indicated by the dotted gray lines. This was a bullish divergence and indicated additional strength in the near-term.

Graphic provided by:
Additionally, a stock normally breaks in the direction of the fifth channel test. In other words, notice how Nexen tested the top and bottom channel lines five times - in alternate sequence. Since the fifth test occurred along the top channel line, it was an indication that the stock would likely break to the upside.

Now that this has occurred, the channel breakout indicates a long-term upside target of between $27.00 and $30.00. As a result, I would look to accumulate the stock on any near-term weakness. More specifically, the $22.00 to $22.50 range - site of the recent quadruple top breakout and the stock's 200-day moving average - appears to be a good entry point.

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
E-mail address:

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