Pioneer Natural Resources Still Range-Bound

04/27/05 07:48:10 AM

by Kevin Hopson

A bullish consolidation pattern and increasing pessimism may be a winning recipe for Pioneer.

Security: PXD
Position: N/A

Pioneer Natural Resources (PXD) has been stuck in a trading range since early March, as illustrated by the dotted green lines (Figure 1). In addition, downtrend resistance is currently standing in the way of higher prices. More specifically, note how Pioneer has topped out around the $44.00 level the past two days. This is the site of the top red parallel line, which is acting as short-term resistance. If the stock can overcome this downtrend line, prices should look to test the top of the trading range again.

Because trading ranges tend to be continuation patterns and the long-term trend is positive, a break to the upside is likely. If this does occur, Pioneer could eventually make its way up to the $54.00 to $58.50 range. I calculated this target by taking the number of times that prices will have to test the top channel line in alternate sequence before breaking out (3), multiplying this number by the width of the trading range ($45.00-$40.50=$4.50) and then adding this figure ($4.50x3=$13.50) to the bottom ($40.50+$13.50=$54.00) and top ($45.00+$13.50=$58.50) channel lines. This calculation assumes that prices will break to the upside on the next test of the top channel line.

Figure 1: A bullish consolidation pattern and increasing pessimism may be a winning recipe for Pioneer.

Graphic provided by: StockCharts.com.

In the meantime, market sentiment toward the stock continues to be negative. For example, short interest as of April 8 was 6,070,000 shares. This is an 11% increase from March and equals a short interest ratio of roughly 4.0x. In addition, 40% of the analysts who cover Pioneer still have a hold or sell rating on the stock. Further, Pioneer's put/call open interest ratio for the front three months is 1.18, which is higher than 91% of the readings over the past year. Because pessimism remains high, there is a lot of potential buying pressure to push up prices. When you combine this with the bullish consolidation pattern we are seeing, Pioneer could have the makings of a solid long-term investment.

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.