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TransGlobe Energy's Bullish Triangle Formation

04/05/04 09:44:47 AM
by Kevin Hopson

TransGlobe Energy has seen its stock price appreciate significantly over the past eight months but the bullish consolidation pattern indicates even higher prices ahead.

Security:   TGA
Position:   Accumulate

TransGlobe Energy (TGA) is a small-cap oil and gas exploration and production company with primary operations in Yemen and Canada. Over the last eight months, the stock has appreciated nearly 500 percent, going from roughly 50 cents in August '03 to over $3.00 this past January. Despite the huge run-up in TransGlobe, the stock looks poised to move even higher in the near-term.

TransGlobe formed a large bullish triangle dating back to January, illustrated below by the black trendlines. Symmetrical triangles tend to be continuation patterns. Since the long-term trend is up, I would anticipate an eventual break to the upside. If so, TransGlobe could see its stock price rise to as much as $4.00 per share. I calculated this price target by taking the base of the triangle (high point minus low point: $3.14 - $1.83 = $1.31) and adding this number to the current breakout point, which is slightly over $2.75. This gives me a price target of just over $4.00 ($2.75 + $1.31 = $4.06).

Graphic provided by:
As you can see on the six-month chart, TransGlobe recently moved back above its 10-day, 20-day and 50-day moving averages, which have all converged in the $2.50 to $2.55 range. As a result, this price range should act as significant support in the near-term. Additionally, February's uptrend line (bottom of the triangle) - which comes into play around the $2.45 level - should act as ultimate support for the stock. This would make the $2.45 to $2.55 range an attractive place to buy on a pullback. Given the limited downside risk and huge upside potential, I would look to accumulate shares of TransGlobe Energy in the near-term.

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
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