|Apache Corp. (APA), an oil and natural gas exploration and production company, has significantly outperformed the market over the last year. While the Dow, S&P 500 and Nasdaq all took out their September 2001 lows back in July, Apache Corp. did not even come close. More specifically, Apache bottomed out in the $45.00 to $46.00 range back in July, much higher than its September 2001 low around $35.00/share.|
|Additionally, in recent days Apache has been making a run at its 52-week high ($60.09), while the major indices have proceeded to test and/or break recent lows. As a result, Apache is an excellent example of the type of company to look for in a bear market. They have had a couple of significant technical developments over the past few weeks that signaled a potential move higher.|
|Graphic provided by: Stochcharts.com.|
|First, there was a shakeout pattern in early September. To elaborate, a shakeout pattern develops when a stock fails to significantly break a prior top and then proceeds to give a short-term sell signal. What differentiates a shakeout pattern from other double top formations are the following: |
1) The stock is in a clear uptrend and is trading above its trendline,
2) The long-term relative strength is positive and
3) The stock has not given a sell signal prior to the shakeout.
|By looking for these technical characteristics, investors can identify a shakeout pattern and be more confident that prices will reverse back up. For example, if you look at the chart on Apache, you will see that the stock formed a double top in the $57.00 to $58.00 range during the month of August. This came after the July lows so the stock was in a clear uptrend.|
|In addition, Apache did not give a sell signal (breach a prior low) until the stock broke support in the $53.00 to $54.00 range early last month. This completed the shakeout pattern. Coincidentally, Apache's long-term relative strength gave a buy signal on September 16, confirming the potential move up. As you can see, the stock found support along its 200-day moving average (down around the $52.00 level) and proceeded to break a significant top in the $57.00 to $58.00 range, eventually making its way up to the $60.00 level.|
|Glen Allen, VA|
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