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TECHNICAL ANALYSIS


EnCana Corporation Testing Key Support

10/21/03 08:40:07 AM
by Kevin Hopson

EnCana Corporation's triangle breakout is in jeopardy if the stock cannot hold support at current levels.

Security:   ECA
Position:   Hold

Though EnCana Corp. (ECA) recently broke out of a large bullish triangle formation, the technicals are at a key juncture right now. For example, EnCana sold off on Monday after Morgan Stanley downgraded the stock to "Equal-Weight" from "Overweight." Some sort of pullback was expected, however, as EnCana appeared to be forming a bearish flag formation. This is illustrated by the red trendlines. You normally want to see prices move against the trend during a consolidation period. Since this failed to occur, a break to the downside was expected and Morgan Stanley's bearish downgrade ended up being the catalyst.

Now that EnCana has pulled back, the stock is testing key support in the $36.60 to $37.00 range. This is the site of EnCana's 50-day moving average ($36.91), June's former downtrend line, the blue uptrend line and the 38.2 percent retracement level from the July-October rally. Just to note, June's downtrend line and the blue uptrend line are the most important things to watch right now. With regard to June's downtrend line, this was broken early this month. Since significant resistance levels tend to act as support once they are broken, it is key that EnCana find support here.

Graphic provided by: Stockcharts.com.
 
In terms of the blue uptrend line, this is more of a warning line more than anything else. For example, notice how the stock breached the bottom parallel line of the green pitchfork late last month. This is usually a bearish sign but for the purpose of giving the stock a second chance, a new trendline (or warning line) is drawn. If this uptrend line is breached, it will likely signal further weakness in the stock price. Since June's downtrend line and the blue warning line have both converged around $36.80, this is a significant support level for EnCana in the near-term. Should it be breached, look for a further pull back to the $36.00 level, site of July's uptrend line and the 50 percent retracement level from the July-October rally.



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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