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TECHNICAL ANALYSIS


Emerging Support For Rowan Cos.

07/29/04 01:48:02 PM
by Kevin Hopson

The recent pullback in Rowan Cos. may provide an excellent buying opportunity for investors.

Security:   RDC
Position:   Accumulate

The stock of Rowan Cos. (RDC) is displaying impressive strength since bottoming out in May, appreciating roughly 25 percent over the last two months. Unfortunately, as you can see in the year-to-date chart, Rowan recently broke support along the bottom parallel line of the black pitchfork. As a result, this uptrend line is now acting as resistance. However, the rising 50-day moving average is providing near-term support for the stock, helping limit the initial downside move. With Rowan now stuck between short-term support and resistance levels, what should investors do?

Well, given the plethora of support around the $23.00 level, I would look for a buying opportunity on further weakness. Notice how the stock's 100-day, 150-day and 200-day moving averages all reside around the $23.00 level. Also coming into play here is the 50 percent retracement level from the May-July rally, as well as June's unfilled gap. If that is not enough, January's downtrend line (green line), which Rowan overcame in mid-June, is converging right at the $23.00 level. Since prior resistance levels tend to act as support, this trendline will likely provide a bounce. To sum it up, there is a significant confluence of support here, to say the least.

Graphic provided by: Stockcharts.com.
 
The technicals are not the only thing pointing to a potential buying opportunity. Looking at current market sentiment towards the stock, you will see that investors are overly pessimistic on Rowan. For example, short interest for the stock rose to 10.65M shares in July, which is nearly 7.0x Rowan's average daily volume. Additionally, 55 percent of the analysts covering the company currently have a hold or sell rating on the stock. Given key support down around the $23.00 level and the market's pessimistic outlook on the stock (potential buying pressure), I would look to accumulate shares of Rowan on significant weakness.



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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Date: 07/30/04Rank: 1Comment: 
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