Devon Energy Corp (NYSE: DVN) Short Term Analysis

September 17th, 2006

I think Devon Energy Corp (NYSE: DVN) is at an interesting place right now. It’s an energy company based out of Oklahoma, primarily dealing in oil and natural gas. Their recent gulf oil discovery news got them a lot of sudden attention. A couple of analyst upgrades quickly followed, and the stock price made the kind of exaggerated up move that one might expect, but which can’t be sustained. Now, after the price has fallen back to its previous levels again, the question is: what can we expect going forward?

Well, the oil discovery and analyst upgrades are still good news, even though the initial reaction was overdone. It was also reported that the Director is buying shares at the $67 level. Always good to see that kind of confidence. At the same time, though, the oil company stocks have taken a hit recently, and the public’s enthusiasm for good news dwindles awfully fast.

The Charts
With my generally short-term focus, I look at the news for obvious signals, but I put more faith in the charts. So, let’s take a look at the daily chart:
DVN daily -- 2006-09-15
I’ve drawn in what I think are the two most important features. First, look at how much the market participants seem to respect the 65 level. DVN got above it briefly in early August, but it wasn’t a very inspiring move. The next move through 65 was the big news gap in early September, which hasn’t held. The stock is hovering around the 65 level again, now. The other important line on this chart is the up trend through June and July. The stock flattened out in August, breaking the trend. You can see, though, that the September gap got it back on track briefly. You can see that this uptrend projects to the 70 level now, if it had held.

It so happens, that 70 is also a big level for the stock. Here’s the weekly chart for the last 18 months:
DVN weekly -- 2006-09-15
DVN’s recent exaggerated jump was its first move through 70, but the weekly chart makes it clear how unconvincing it turned out to be. The weekly uptrend from June isn’t just real clean on the weekly chart, but it projects up to around 65, right below the current price.

One more chart I like to check is the 2-box, ATR-scaled Point and Figure chart:
DVN - point and figure 2006-09-15
Here, you can see a long-term uptrend from 2004 up to the April-May 2006 timeframe, followed by a bit of a dip before starting a new uptrend in June 2006. I didn’t draw it in, but it’s easy to spot the heavy resistance at the 70 and 65 levels, due to how many of the columns top out at those levels. Point and Figure charts rarely agree exactly with candlestick charts, but here we have another confirmation that the price is in danger of breaking an uptrend at that 65 level. This chart won’t confirm a continuation of the trend until the price hits 72.6 again.

How I Might Play This Stock
Right now, the price is in limbo between continuing its uptrend, or breaking down. So, as a technical trader, it’s my job to wait, and watch for a sign that the stock has chosen a direction. Then, I’d consider getting into the stock in whichever direction it picks.

Bearish? When three types of charts that all point to 65 as an important level, I listen. A significant drop below 65 would seriously diminish its upward momentum. When I say a significant drop, I would be looking for strong volume, and a close below 65. I’d prefer it not to gap through 65. If the down move materializes, there’s a certain amount of support at the 60 level, and much stronger support at the 55 level (you can see both on the weekly chart–the stock has trouble falling below 55).

Bullish? Two of the charts tell me a break of 70 in the near future would be a bullish sign. The Point and Figure chart takes a more conservative view, not confirming a resumption of the uptrend until the mid 72’s. So, I’d get in long on a significant break of 70, and be wary of the 72.50 and 75 levels. Beyond 75, it’s in totally uncharted territory, and could go anywhere. I’d also keep in mind that as that daily chart uptrend line continues upward, it can act as resistance going forward.

About this Post
This is my first post on the StockTickr blog. I thought I’d try a little stock analysis of stocks where I see StockTickr users have open trades. I’m not giving investment advice, but rather merely telling you what I see when I look at the company, as a professional short-term trader.

I intend to make more posts like this one, either every week, or every other week. So, please let me know what you think, good or bad. Feel free to agree or disagree with me on the analysis, as well. There is always room for debate!

If you’d like to see your favorite stock get this kind of treatment, feel free to post a comment here, or mail me at richard@movethemarkets.com. Assuming I have something to say about it, I’ll either post analisys up here, or at the Move the Markets blog.

2 Comments

  1. My first StockTickr Blog posting » Move the Markets Said,

    September 18, 2006 @ 8:31 am

    […] The article is here: Devon Energy Corp (NYSE: DVN) Short Term Analysis. Stocks Mentioned In This ArticleStockLinks DVN | | […]

  2. stocktickr blog » Blog Archive » Devon Energy Corp (NYSE: DVN) Follow-up Said,

    September 25, 2006 @ 5:58 am

    […] Last week, I posted a short term analysis of Devon Energy Corp (NYSE: DVN). Every time I do one of these short term analysis pieces, I’m going to follow up on them one week later. Especially if the analysis turned out to be incorrect, I’ll try to see if there was a reason, or if it was just bad luck. In the case of DVN, though, things went very well! […]

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