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A Megaphone Top For Anadarko Petroleum?

05/04/04 10:59:20 AM
by Kevin Hopson

Anadarko Petroleum's broadening triangle formation indicates a potential forthcoming top in the stock price.

Security:   APC
Position:   N/A

Anadarko Petroleum (APC) has been in a nice steady uptrend since the beginning of this year. However, the stock looks to be forming a potentially bearish pattern. If you look at the six-month chart, you will notice that Anadarko has formed an expanding triangle, as illustrated by the black trendlines. This is also known as a megaphone top because of its shape and tendency to form during market tops.

The primary reason this is considered a topping pattern is the increased volatility in the stock price. Here, the bulls continue to push prices higher (top trendline), while the bears proceed to push prices lower (bottom trendline). Unlike a symmetrical (contracting) triangle, where volume usually dries up, an expanding triangle tends to see a pick-up in volume during the formation. As you can see, volume has been on the rise as the triangle has expanded. Volatile trading such as this - on increased volume - indicates that public interest in the stock has likely peaked, thus the bearish outlook.

Graphic provided by:
You will also notice that prices have been contained within the green pitchfork since February of this year. As a result, a break of support around the $52.00 level, the site of the bottom black trendline and the bottom green parallel line, would likely confirm a top in the stock. In the meantime, I would remain cautious on Anadarko Petroleum and look to sell into strength.

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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Date: 05/11/04Rank: 4Comment: 

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