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Rowan's Triangle Breakout with a Developing Cup and Handle

05/29/03 08:35:06 AM
by Kevin Hopson

Rowan Cos. recently broke out of a bullish triangle formation and now looks to be forming a cup with handle.

Security:   RDC
Position:   Accumulate

Rowan Companies, Inc. (RDC) is a provider of onshore and offshore contract drilling services, as well as aviation services, both domestically and internationally. Technically speaking, the stock recently broke out of a one-year bullish triangle formation, indicating the potential for higher prices in the long-term. This is illustrated by the gray trendlines in the two-year chart. However, another pattern is developing, which would support the theory for further price appreciation down the road.

More specifically, Rowan has put in a U-shaped bottom, also known as a cup, which is indicated by the black arrows. This is considered a long-term continuation pattern and is usually a bullish sign. However, it is still unclear whether or not a handle is developing. For this to occur, Rowan will have to stay in the upper third of the cup formation during its consolidation phase. In other words, the stock will have to see flat-to-slightly lower trading in the near-term, as a sell-off would likely ruin this formation. Additionally, volume should decline during this period.

Graphic provided by:
If a handle does develop and Rowan proceeds to break out above the $25.00 level, the ultimate upside target (based on the depth of the cup) would be roughly $32.00. This would coincide with two other price targets. For example, you will notice that the median line of the blue pitchfork is currently capping prices. If Rowan does break to the upside, the top parallel line, which is converging around the $32.00 level, would be the next upside target. Additionally, the recent triangle breakout indicates a potential upside target of $33.00.

As a result, I believe a price target of $32.00 to $33.00 is definitely obtainable in the long-term. In the meantime, I would look for Rowan to consolidate in the $23.00 to $25.00 range, with the May 2002 downtrend line (broken resistance) acting as ultimate support in the near-term. Furthermore, I would look to accumulate shares of Rowan on any short-term weakness.

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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