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TECHNICAL ANALYSIS


Vintage Petroleum Looking To Break Out

06/01/04 11:30:35 AM
by Kevin Hopson

A break of key resistance at current levels could signal higher prices down the road.

Security:   VPI
Position:   Hold

Vintage Petroleum (VPI) has been consolidating between the $14.00 and $16.00 levels for the last three months. This is best illustrated by the top half of the black pitchfork, which has contained prices since the beginning of March. However, the stock may be close to breaking out of this pattern, as prices are once again testing the upper channel line.

Notice how the blue median line and the top green parallel line recently converged at the $15.40 level. When you see two or more pitchfork lines intersect (or converge) at a higher price level, these trendlines will normally act as resistance. However, as you can see in the year-to-date chart, Vintage broke through this barrier late last week. As a result, the short-term picture has turned bullish.

Graphic provided by: Stockcharts.com.
 
For the longer-term picture to turn bullish, Vintage must take out key resistance in the $15.80 to $16.00 range. This is the site of April's high and the sliding red parallel line. When prices break above the top parallel line of a pitchfork and then move back below it, a "sliding parallel line" is drawn from the prior high. This is done because prices can accidentally overshoot the top parallel line, giving the false impression that a breakout has occurred.

However, if prices were to breach the sliding red parallel line, a breakout would be confirmed. In other words, a break of resistance in the $15.80 to $16.00 range would likely lead to much higher prices down the road. As I have stated many times before, trading ranges tend to act as continuation patterns. Since the current formation occurred after a sharp move up, it could just be a matter of time before Vintage breaks out again. As a result, I would continue to hold shares of Vintage Petroleum while this pattern plays 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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