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Caution For Plains Exploration & Production

06/04/04 10:00:22 AM
by Kevin Hopson

The stock is starting to break down but is it time to sell?

Security:   PXP
Position:   Hold

Plains Exploration & Production Co. (PXP) has been in a nice steady uptrend since last August, as illustrated by the one-year chart. You will notice that prices have been contained within the reverse pitchfork configuration (green trendlines) during this time, and then broke out of a bullish trading range in the middle of this uptrend.

If you take the number of times that Plains tested the top channel line in alternate sequence before breaking out (4), multiply this number by the width of the trading range ($16.25 - $15.00 = $1.25) and then add this figure (4 x $1.25 = $5.00) to the bottom ($15.00 + $5.00 = $20.00) and top ($16.25 + $5.00 = $21.25) channel lines, you come up with a rough price target of $20.00 to $21.25.

Graphic provided by:
The stock topped out just below the $21.00 level back in April, meaning that the trading range breakout calculation was accurate. Unfortunately, Plains has now breached support along the bottom green parallel line, as well as its 100-day moving average ($17.63). Since the trading range breakout accurately predicted a turning point in the stock and the technicals are starting to break down, it seems like it is time to get out.

Though the warning signs are there, it might be better to give the stock the benefit of the doubt. The stock is currently testing support in the $17.00 to $17.25 range, the site of a multiple bottom and the 61.8 percent retracement level from the February-April rally. Even if this price range fails to hold, there is additional support around $16.50, which is the site of the stock's 150-day moving average ($16.55) and the unfilled gap from March's breakout.

If I draw a trendline parallel to the bottom line of the green pitchfork (at an equal width to the other two pitchfork channels), I can project another potential bouncing point. As you can see, this trendline converges around the $16.50 level, where there is already a significant confluence of support. Therefore, I would continue to hold shares of Plains Exploration & Production but remain cautious in the near-term. If the $16.50 level is taken out, I might consider lightening up.

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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