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Berry Petroleum Caught In A Trading Range

07/28/03 07:53:46 AM
by Kevin Hopson

Berry Petroleum looks to be caught in a trading range but the longer-term trend could indicate an eventual break to the upside.

Security:   BRY
Position:   Accumulate

Berry Petroleum Co. (BRY) is engaged in the exploration and production of crude oil and natural gas, though crude oil makes up the bulk of the company's sales. Berry operates primarily in the state of California. Technically speaking, the stock has had a difficult time breaking resistance around the $18.40 level. As you can see in the chart, Berry recently formed a double top at this level and has now pulled back.

However, the stock has continued to find support around the $17.00 level, effectively forming a trading range. Since trading ranges tend to act as continuation patterns and the longer-term trend is positive, I believe Berry will eventually see a break to the upside. In the meantime, there will be some important price levels to watch.

Graphic provided by:
More specifically, notice how the top black parallel line (July's downtrend line) and the top green parallel line have both converged around the $17.80 level. As a result, I would expect Berry to find resistance here in the near-term. If the stock can breach this level, another test of the upper channel line ($18.40) is likely.

On the other hand, Berry is currently bouncing off its 50-day moving average ($17.35), which is acting as near-term support for the stock. If this moving average fails to hold, I would look for ultimate support down around the $17.00 level, site of June's low and the green median line. Also, notice how the moving average convergence/divergence moved higher last week, while the stock price moved lower. This is a bullish divergence and could indicate a potential bottoming pattern. Coupled with significant support at slightly lower levels, I would be a buyer in the $17.00 to $17.35 range.

Even if Berry does not pull back to this price range, I would look to accumulate shares on any near-term weakness. Given the bullish consolidation pattern we are seeing and the stock's strong fundamentals (low debt, trading at less than 10.0x 2003 earnings and 2.5 percent dividend yield), Berry appears to be an excellent long-term investment.

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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