Range Resources At A Key Inflection Point

11/18/04 08:36:39 AM

by Kevin Hopson

Downtrend resistance and moving average support are converging for Range Resources. So which way will the stock break in the near term?

Security: RRC
Position: Hold

Range Resources (RRC) has had an impressive run this year, as the year-to-date chart shows. More specifically, the stock price nearly doubled from January to October before recently pulling back. Now that the stock has corrected, there are some interesting developments worth noting. For example, see how prices had been contained within the black pitchfork since mid-May. The recent break of the bottom parallel line was negative, but fortunately for the stock, the 38.2% retracement ($15.00) from the February to October rally acted as a good bouncing point.

Since then, Range Resources has moved back above the bottom black parallel line, as well as its 50-day moving average ($16.37). As you can see in Figure 1, the stock has been finding short-term support along this rising moving average. On the other hand, the top parallel line of the purple pitchfork (or October's downtrend line) has been acting as resistance around the $17.00 level. When a rising support level and a falling resistance level both converge, it is known as an inflection point. In other words, something will have to give soon.

Figure 1: Range Resources

Graphic provided by: StockCharts.com.

If pitchfork analysis is any indication, Range Resources could see a break to the upside. The reason I say this is because prices failed to test the purple median line before testing the top parallel line. This is known as the "price failure" rule, which is a sign of strength in this case. In addition, short interest for Range Resources was 4.14 million shares, or over 9.0 times normal daily volume, as of October 8. This means the stock has a lot of potential buying pressure to push it over the hump. If the stock can overcome resistance at $17.00, the stock could make its way up to the $17.80 level (top green parallel line) in the near term. In the meantime, I would continue to hold for further developments.

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.