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CHANNEL LINES


A Trading Range For TransGlobe Energy

05/27/04 01:40:09 PM
by Kevin Hopson

TransGlobe Energy's failed triangle breakout last month has created additional buying opportunities for the stock.

Security:   TGA
Position:   Accumulate

The last time I touched on TransGlobe Energy (TGA), I recommended accumulating shares of the stock on anticipation of a move higher, based on a bullish triangle formation on TransGlobal's chart. A bullish triangle is a pattern of higher lows and lower highs after a sharp move up. This is illustrated by the black trendlines on the chart below. As you can see in the six-month chart, TransGlobe did in fact break to the upside from this formation but eventually found resistance around the $3.00 level.

Since then, the stock has proceeded to move lower. After breaking February's uptrend line, TransGlobe has continued to find resistance along its declining 10-day and 20-day moving averages, as well as the top parallel line of the orange pitchfork. However, looking at the bigger picture, you will notice that TransGlobe is still consolidating in a four-month trading range between the $2.00 and $3.00 levels. Since trading ranges tend to be continuation patterns and the long-term trend is positive, TransGlobe could see a significant break to the upside.

Graphic provided by: Stockcharts.com.
 
If so, the stock could eventually make its way up to the $5.00 to $6.00 range. This calculation assumes that TransGlobe will test the top channel line again (for a third time) and proceed to break out. By taking the number of times that the stock tests the top channel line in alternate sequence before breaking out (3), multiplying it by the width of the trading range ($3.00 - $2.00) and adding this figure (3 x $1.00 = $3.00) to the bottom ($2.00 + $3.00 = $5.00) and top ($3.00 + $3.00 = $6.00) channel lines, you come up with a rough price target of $5.00 to $6.00.

Though this price target can change as the chart pattern develops and there has been no official breakout yet, I would continue to accumulate shares of TransGlobe Energy in anticipation of much higher prices down the road. For those of you unwilling to bet on an upside breakout, buying support at the lower channel line - should the opportunity present itself - could be a safe entry point as this trading range continues to play out.



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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Comments

Date: 05/28/04Rank: 5Comment: Excellent buy with the breakout above the 50ema with confluence of down trendline and upper pitchfork line.
Date: 05/28/04Rank: 5Comment: 
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