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OVERBOUGHT OVERSOLD


Apache Hits Support

08/07/08 08:51:53 AM
by Arthur Hill

Apache Corp. declined sharply with the rest of the energy sector, but a bounce could be in the cards now that the stock is oversold and at support.

Security:   APA
Position:   Accumulate

Figure 1 shows Apache (APA) over the last two years. The stock surged from January to May 2008 and broke resistance from the 2007 highs in the process. With a sharp decline in July, the stock returned to these broken resistance levels. Broken resistance often turns into support, and I am marking a support zone around 105–112. This may seem like a big zone, but APA requires some room to wiggle after volatile trading in 2008.

FIGURE 1: APA, DAILY. This stock surged from January to May of this year and broke resistance from the 2007 highs in the process.
Graphic provided by: TeleChart2007.
 
The 62% retracement is the second reason for support in the 105–112 area. The January–May advance was quite sharp (85 to 150 in less than five months). Some sort of pullback would be quite normal, and we would expect a 50% to 62% retracement of the prior advance; 62% stems from the Fibonacci number (0.618) and 50% comes from Dow theory. This retracement area also jibes with the big support zone.

With the sharp decline to long-term support, the 10-day relative strength index (RSI) became oversold with a move below 30. The indicator wallowed near oversold levels most of the month and then turned up the last six days. As the red trendline shows, the overall trend for momentum is down. The RSI is meeting some resistance around 50, and a break above this level would be positive for momentum.

FIGURE 2: APA, DAILY. This stock seems to be finding support around 105–107 with three bounces over the last three weeks (green arrows).
Graphic provided by: TeleChart2007.
 
The stock itself is finding support around 105–107 with three bounces over the last three weeks (Figure 2, green arrows). Volume has been mixed as the stock consolidates, but there is clear evidence for support. With the stock both oversold and at support, a bounce can be expected with an upside target around 128–130. This target stems from broken support (green dotted line).



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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