More technical expertise
11/03/2006 12:00 am EST
Another of our favorite technical whizzes, Gordon Pape, uncovers short-term trading opportunities in a variety of industries. In his latest issue, he focuses on the natural resource industry, recommending opportunities in both an oil and gas company.
"The November oil futures contract is in the midst of completing an intermediate fourth wave correction. It also appears that the third wave, of the five wave Elliott Wave advance, has extended which suggests that the fifth wave should approximate the length of the first. Since the first wave's rally measured about US$24.20, it would suggest that the rally ahead should take prices back up to or slightly higher than the previous highs. As such, oil prices should rally to about US$81.42 over the next six months.
"In these circumstances, I would recommend buying Imperial Oil (IMO AMEX, TSX) at current prices. I originally recommended Imperial on Aug. 24/05 at C$103.50 (US$86.70). The shares subsequently split three-for-one so the split-adjusted recommended prices are C$34.50 and US$28.90. We're only slightly ahead at this stage, but there is significant upside potential here.
"Shares of EnCana Corporation (ECA NYSE, TSX), one of North America's leading natural gas producers and a technical and cost leader in the recovery of oil sands, appear to have completed an intermediate wave two correction in a five wave Elliott Wave advance. Although initially the share price traced out a bullish inverted head and shoulders pattern, the pattern failed and transitioned into a larger sideways correction. The MACD has issued a preliminary buy signal from an extremely oversold position and the stock is now once again trying to cross above the 200-day moving average resistance.
"It should continue to rally to the previous neckline resistance at about $59-$60. A close above $2, which seems likely on this attempt, would confirm that the third intermediate wave rally is underway. Although it is usually the most dynamic and never the shortest, we could take a conservative approach in determining a possible third wave price target by assuming that at the very least the point gain should approximate that of the first wave. As such, if we add the $45 point move for the first wave to the low point of the most recent low it would project a $93 target over the next two years.
"EnCana's second-quarter results indicated that its cash flow reached US$1.8 billion or $2.15 per share, up 22% over the year-earlier results. EnCana posted net earnings of $2.55 per share on a diluted basis. For the full year, Morgan Stanley expects the company to report net earnings of $3.71 per share and $4.62 in 2007."