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Brigham Exploration's Bullish Trading Range Formation

11/24/03 10:40:33 AM
by Kevin Hopson

Brigham Exploration failed to form a cup with handle pattern but the stock appears to be settling into a bullish trading range.

Security:   BEXP
Position:   Accumulate

The last time I touched on Brigham Exploration (BEXP), I said that the stock was forming a potential cup with handle pattern. However, if you remember, I said that two things had to occur for such a pattern to be confirmed. One was that the stock had to consolidate (decline or move sideways) on low volume, which would have effectively formed the handle. The reason you want to see a falling or sideways handle is because a rising handle, like a rising wedge or a bearish flag, is usually resolved by a break to the downside.

Well, in the six-month chart, the stock initially showed signs of forming a handle but volume only dried up temporarily. What triggered the pick up in volume was the second factor I had mentioned. More specifically, that Brigham had to stay above the 38.2 percent retracement level ($7.17) from the Oct.-Nov. rally, the reason being that handles should not retrace a significant percentage of the prior move up. Once this retracement level was breached, volume picked up and the stock proceeded to sell off.

Graphic provided by:
However, looking at the bigger picture, you will notice that Brigham is settling into a trading range between the $6.20 and $7.70 levels. Since trading ranges tend to be continuation patterns and the trend is positive, I would expect Brigham to eventually break to the upside. Also, notice that the green median line and the bottom channel line are quickly coming into play. Since these two lines are converging in the $6.20 to $6.30 range, Brigham should find near-term support here. As a result, I would look to accumulate shares of the stock on a potential pullback to these levels.

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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Date: 12/16/03Rank: 4Comment: 

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