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ASCENDING TRIANGLES


Quicksilver Resources' Ascending Triangle Formation

06/17/03 01:49:08 PM
by Kevin Hopson

Quicksilver Resources broke out of an ascending triangle formation in mid-May and is in the process of completing another one. As a result, the stock could see an upside breakout in the near-term.

Security:   KWK
Position:   Accumulate

Quicksilver Resources (KWK) is engaged in the exploration and production of natural gas, crude oil and natural gas liquids primarily from unconventional reservoirs such as fractured shales, coal beds and tight sands. Technically speaking, Quicksilver has formed an ascending triangle, a pattern of horizontal (flat) highs and higher lows. This is the second ascending triangle that Quicksilver has formed in the last four months. Since this pattern is usually resolved by a break to the upside, Quicksilver could be setting up for another rally.

More specifically, if you look at the chart, you will notice that the stock broke out of an ascending triangle just last month. This is indicated by the dotted black lines. The base of the triangle (initial high to ultimate low) is usually added to the breakout point to determine a potential price target. Since Quicksilver broke a significant top at the $24.50 level and the base is roughly $2.90 ($24.50 - 21.60), the initial price target for the stock is $27.40 ($24.50 + $2.90). As you can see, the stock has yet to reach this target, indicating further upside potential in the near-term.

Figure 1: Daily chart for KWK.
Graphic provided by: Stockcharts.com.
 
However, Quicksilver has formed another ascending triangle, as indicated by the green lines. If this pattern holds true, the stock should see another upside breakout in the near-term. Since the base of this triangle is $2.00 ($26.00-$24.00) and Quicksilver would have to breach the $26.00 level significantly for a breakout to occur, $28.00 ($26.00 + $2.00) would be a reasonable price target. In other words, based on the two ascending triangle formations, it appears that Quicksilver could reach the $27.50 to $28.00 range in the near-term.

Furthermore, Quicksilver has formed a large ascending triangle dating back to last August. This means that the stock has formed two ascending triangles within a larger one. More specifically, the $26.00 level that Quicksilver is having such a difficult time overcoming right now is in approximation to last August's high. As a result, the pattern of higher lows over the past eight months (from the October '02 low) indicates a longer-term break to the upside. Though this is not shown in the chart, a break above the $26.00 level would indicate a long-term price target of roughly $35.00. Given significant support in the $25.20 to $25.50 range, site of the stock's 10-day and 20-day moving averages and May's uptrend line, I would look to accumulate shares on any near-term weakness.



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.

Glen Allen, VA
E-mail address: hopson_1@yahoo.com

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