Is Cimarex Energy Poised To Move Higher?

08/24/04 09:40:18 AM

by Kevin Hopson

Short-term indicators predict a forthcoming bottom reversal, while the long-term pattern points to higher prices.

Security: XEC
Position: Hold

Cimarex Energy Co. (XEC) sold off in early August and has found itself in a steady decline since then. However, positive divergences on the daily chart and a bullish long-term pattern may point to a reversal soon, as well as an eventual breakout to new highs. The relative strength index (RSI), moving average convergence/divergence (MACD), and full stochastics have all been putting in higher lows despite the fact that the stock price has been trading lower. These divergences are often indicative of a forthcoming bottom reversal.

In the meantime, the stock has pulled back to a couple of key support levels. Notice how prices have been contained within the black pitchfork since early May. Prices recently bounced off the bottom parallel line, which is typical with a pitchfork formation. Additionally, Cimarex has pulled back to this summer's trading range breakout point around the $29.60 level. Since prior resistance levels tend to act as support, prices have held up here thus far.

Graphic provided by: Stockcharts.com.

This trading range breakout indicates the potential for much higher prices in the long-term. Cimarex could eventually make its way up to the $36.00 to $39.00 range. I calculated this price target by taking the number of times that prices tested the upper channel line in alternate sequence before breaking out, multiplying this figure (3) by the width of the trading range ($29.60 - $26.40 = $3.20) and then adding this number (3 * $3.20 = $9.60) to the bottom ($26.40 + $9.60 = $36.00) and top ($29.60 + $9.60 = $39.20) channel lines. Since the stock appears to be in a developing bottom pattern and the recent trading range breakout indicates significant upside potential, I would continue to hold shares of Cimarex Energy.

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.