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A Developing Bottom For Frontier Oil?

08/05/03 12:49:54 PM
by Kevin Hopson

Frontier Oil's five-month downtrend could be coming to an end, making the stock an attractive buy in the near-term.

Security:   FTO
Position:   Accumulate

Frontier Oil Corp. (FTO) is a petroleum refining company with primary operations in Cheyenne, Wyoming and El Dorado, Kansas. Once the company's pending acquisition of Holly Corp. (HOC) is completed, Frontier Oil will also have operations in Montana, New Mexico and Utah. Technically speaking, Frontier Oil has been in a clear downtrend since forming a double top in early April. However, the chart is pointing to a potential bottom reversal in the near-term.

For example, notice how the relative strength index (RSI) has been moving higher the last month despite a continued decline in the stock price. Also, the moving average convergence/divergence is settling into a trading range, as the indicator has continued to move sideways since early June. In other words, we are seeing bullish divergences on the chart, which often signal a developing bottom. If this is true, the $14.00 to $14.50 range appears to be an excellent buy area for the stock.

Graphic provided by:
More specifically, you will notice that the top blue pitchfork line has acted as support for Frontier Oil since mid-March. Additionally, you will notice that the stock has been contained within the black pitchfork since early this year. With the top blue line and bottom black line both converging around $14.50, this price level should act as significant support for the stock in the near-term.

Also coming into play at $14.50 is the 50 percent retracement level from the Oct. '02-March '03 rally. With additional support around the $14.00 level (gray median line), the near-term downside potential appears to be minimal. As a result, I would accumulate shares of Frontier Oil on further price weakness and look to take a full position in the $14.00 to $14.50 range.

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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