EOG Resources' Bullish Channel Formation

10/07/03 07:56:01 AM

by Kevin Hopson

EOG Resources is currently consolidating in a bullish trading range but traders should wait for a break of the upper channel line before going long.

Security: EOG
Position: Hold

EOG Resources (EOG) has corrected nicely from July's low, appreciating roughly 13 percent since then. Fortunately for longs, the late summer rally may not be over. For example, if you look at the six-month chart for EOG, you will notice that the stock has been stuck in a bullish channel formation (or trading range) since early September. Since the prior move was up and trading ranges tend to be continuation patterns, it is likely that EOG will break to the upside in the near-term.

While such a move is not guaranteed, the stock is showing signs of strength. For example, notice how EOG failed to test the blue median line before moving back up and testing the top parallel line. This is a sign of strength and usually leads to a break of the top parallel line. As you can see, this occurred late last week. In doing so, the stock also moved above the green median line. Both of these trendlines had recently converged around $42.00, making this level a key resistance point. As a result, EOG's ability to overcome this price level was bullish.

Graphic provided by: Stockcharts.com.

However, I would play it safe and wait for a break of the upper channel line (double top formation) on above-average volume before jumping in. If EOG is successful in doing this, the potential upside target would be $45.20 to $47.60. This calculation assumes that the breakout occurs during the second test of the upper channel line. If so, you would take that number (2), multiply it by the width of the trading range ($42.80 - $40.40 = $2.40) and then add this figure (2 x $2.40 = $4.80) to the lower ($40.40) and upper ($42.80) channel lines to get your potential target 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
E-mail address:	hopson_1@yahoo.com

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EOG Resources' Bullish Channel Formation

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