An Update On Talisman Energy

04/04/05 08:09:59 AM

by Kevin Hopson

Talisman Energy is bumping up against downtrend resistance once again.

Security: TLM
Position: N/A

I touched on Talisman Energy (TLM) a couple of weeks ago. At that time, I mentioned how the stock had met my initial price target ($35.50) based on January's trading range breakout. In addition, Talisman was finding resistance around this level, as it was the site of February's downtrend line (red line) and the green median line. As you can see in the six-month chart (Figure 1), a lot has occurred in the last two weeks.

More specifically, note how prices broke below the bottom parallel line of the green pitchfork late last month, as well as the 10-day and 20-day exponential moving averages (EMAs). However, this short-term weakness was quickly subdued when Talisman bounced off key support at the $31.65 level. This is the site of the 1B channel line and the 38.2% retracement level from the December-February rally. After finding support here, the stock gapped higher, moving back above the bottom parallel line in the process.

Figure 1: Talisman, six-month chart. Note how prices broke below the bottom parallel line of the green pitchfork late last month, as well as the 10-day and 20-day EMAs. However, this short-term weakness was quickly subdued when Talisman bounced off key support at the $31.65 level. This is the site of the 1B channel line and the 38.2% retracement level from the December-February rally. After finding support here, the stock gapped higher, moving back above the bottom parallel line in the process.

Graphic provided by: StockCharts.com.

As a result, Talisman is once again testing February's downtrend line. If the stock can overcome key short-term resistance here, Talisman should eventually make its way up to the $39.00 level, which is my second price target based on January's trading range breakout. However, this could prove more difficult than initially thought, as market sentiment toward the stock is pretty bullish.

For example, 21 of the 26 analysts who cover Talisman currently have a buy rating on the stock. In addition, short interest as of March 8 was 975,000 shares, which equates to a short interest ratio of only 1.51x.

Further, the stock's put/call open interest ratio is 0.33, which is below 71% of the readings over the past year. As a result, there is limited buying pressure to push prices higher. However, this does not imply that February's downtrend line will act as a reversal point. It just means that overcoming resistance here will be more burdensome.

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.