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RSI


Momentum Improving For Anadarko

07/13/06 07:40:58 AM
by Arthur Hill

This stock is underperforming the energy SPDR currently, but that could change.

Security:   APC
Position:   Accumulate

Anadarko (APC) suffered with the rest of the market in May and June, declining below 45. The stock was further troubled by news of two big acquisitions, dipping to a new reaction low at the end of June. Meanwhile, the rest of the energy group looked strong in the middle of a nice rally. The stock has been underperforming the energy SPDR (XLE) over the last few weeks, but that could change with a breakout at 49, which marks the neckline resistance of a head & shoulders pattern that has been taking shape over the last five to six weeks. The left shoulder formed with the mid-June low, the head with the late June low, and the right shoulder is still under construction. In other words, it is unrealized potential right now and it would take a move to above 49 to confirm the pattern. A move above 49 would break the mid-July and early July highs as well as exceed the April trendline. This would all be bullish and the initial upside target would be the April high around 55 (see Figure 1).

FIGURE 1: ANADARKO, DAILY. This energy stock is underperforming currently, but that could change quickly.
Graphic provided by: MetaStock.
 
What are the chances of a breakout? Recent action in the relative strength index (RSI) favors a breakout. APC is not the most volatile stock, and I am using the 10-period RSI to increase the indicator's sensitivity. RSI became oversold in late May and early June (below 30). A positive divergence formed in late June when the indicator held above its prior low and the stock moved below its prior low. A move above the June highs followed the positive divergence, and I find this bullish for momentum. This RSI breakout increases the chances of a neckline breakout for the stock.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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