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TECHNICAL ANALYSIS


Apache In Narrowing Range

04/05/13 03:42:07 PM
by Chaitali Mohile

The descending rally in Apache has entered a tricky trading range. Will the fall continue?

Security:   APA
Position:   N/A

Apache Corp (APA) formed lower highs in 2011. A hanging man, a bearish reversal candlestick pattern, formed at the top (yellow block in Figure 1). The single candlestick formation initiated a robust bearish rally. Gradually, APA plunged below the support of the 50-day moving average (MA). Although the stock tried to regain the lost MA support, increasing bearish pressure discouraged the move. Thereafter, APA continued its descending action, forming lower lows and lower highs.

The relative strength index (RSI) (14) in Figure 1 also formed lower highs under the resistance of 70 levels. The moving average convergence/divergence (MACD) (12,26,9) had a bearish crossover in positive territory, and a marginally developing uptrend turned downwards. The reversing indicators confirmed the hanging man candlestick pattern, thus, strengthening the bearish rally.

FIGURE 1: APA, MONTHLY.
Graphic provided by: StockCharts.com.
 
Currently, APA has moved within a narrow trading range. For long-term traders and investors, trading in between the 10 point rally is risky. Short-term investors, however, can take advantage of this range-bound price movement. Since the downtrend indicated by the average directional index (ADX) (14) is developing steadily, the bearish force is likely to sustain. Therefore, traders should trade with low volumes. The negative MACD (12,26,9) in Figure 1 has plunged in negative territory. In addition, the RSI (14) has slipped below 50 levels. These conditions suggest that the stock would continue to form lower lows and highs.

The declining range is generally difficult for taking trading positions. But traders can stretch the two trendlines drawn in Figure 1 to identify the upper and lower ranges. The bearish rally of APA is moving closer to the various support areas below $70. As a result, the stock is likely to consolidate in this support zone, and could form a bottom. The stock has already descended almost 50% from the top; therefore, future price action could slow down.

To conclude, the bearish rally of APA is about to enter its support areas. Will this slow the speed of the fall?



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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