A Potential Bottom Reversal For Anadarko Petroleum?

07/21/03 09:39:06 AM

by Kevin Hopson

Anadarko Petroleum has seen a sharp sell-off in its stock price the last several weeks but there are signs of a potential bottom being put in.

Security: APC
Position: Accumulate

Anadarko Petroleum (APC) is a large-cap oil and gas exploration and production company with primary operations in Texas, Louisiana, Alaska, offshore the Gulf of Mexico and the mid-continent region. Anadarko is also a major player in Canada and Algeria, with smaller interests in other countries around the world. Technically speaking, the stock has fallen on hard times in recent weeks. More specifically, Anadarko has seen its share price decline roughly 15 percent since early June.

However, if you look at the one-year chart for Anadarko, you will realize that a bullish case can be made for the stock. For example, notice how the stock has formed a declining channel after the initial sell-off in early June. If the current downtrend was going to continue, you would normally see a rising channel, or a temporary correction against the trend. As a result, I believe Anadarko could be setting up for a potential bottom reversal if it has not already done so.

Graphic provided by: Stockcharts.com.

Additionally, notice how the moving average convergence/divergence has been putting in higher highs and higher lows while the stock price has been putting in lower highs and lower lows. This is a bullish divergence on the chart and supports my theory that a significant bottom could be developing. You will also notice that Anadarko recently closed above its 20-day moving average, a price level that has acted as resistance the last few weeks. As long as Anadarko can stay above this short-term moving average, the bulls will be in charge.

One final thing worth mentioning is the nine-month trading range that Anadarko has been stuck in. More specifically, notice how the stock has been trading between $42.50 and $50.50 since last November. Trading ranges tend to be continuation patterns and since the short-term trend was positive prior to this formation, Anadarko could see an eventual break to the upside. The fact that 20 of the 33 covering analysts have a "Hold" or "Sell" rating on the company is another good sign. With market sentiment towards the stock at extremely pessimistic levels, the downside appears to be minimal. As a result, I would look to accumulate shares of Anadarko on any further 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.