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TECHNICAL ANALYSIS


Nexen Inc. Pulling Back to a Key Support Zone

07/10/03 10:07:05 AM
by Kevin Hopson

Nexen Inc. has been on a tear after breaking out of a seven-month trading range back in May. Now that the stock has proceeded to pull back, I would look to accumulate shares at near-term support levels.

Security:   NXY
Position:   Accumulate

I have touched on Nexen Inc. (NXY) a number of times over the last two months. The first time I brought Nexen to your attention was in mid-May, when the stock was breaking out of a seven-month trading range between $20.00 and $22.40. At that point, I recommended accumulating the stock, as the channel breakout indicated an ultimate upside target of $27.00 to $30.00. Shortly thereafter, Nexen formed a bullish pennant, indicating another potential break to the upside. As a result, I reiterated my recommendation to accumulate shares on any price weakness. This analysis proved to be correct, as Nexen moved up roughly 20 percent from its initial channel breakout.

However, the stock failed to reach the bottom of my target price range, painting a recent high just above the $26.00 level. As a result, I believe Nexen has higher to go. Now that the stock has proceeded to pull back, I would look to accumulate shares on further weakness. More specifically, notice the bottom black parallel line and the blue median line. These should act as significant support levels in the near-term. With the stock's 50-day moving average ($23.57) and the 38.2 percent retracement level ($23.81) from the May-June rally also coming into play, the $23.50 to $24.20 range should act as a key support area. In other words, this is where I would look to buy.

Graphic provided by: Stockcharts.com.
 
Another thing I like about Nexen is the market sentiment towards the stock, which is extremely pessimistic right now. For example, 14 out of the 18 analysts that cover Nexen currently have a "Hold" or "Sell" rating on the stock. Additionally, short interest has continued to climb, with the short interest ratio now in excess of 11.0x Nexen's normal daily volume. From a contrarian point of view, this is very bullish, the reason being that there will be a significant amount of potential buying pressure to help push the stock higher down the road.



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: hopson_1@yahoo.com

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