Cimarex Energy Co. (XEC) , was reviewed a month ago, and I noted that, "It looks like buyers of XEC have become more aggressive and an upside breakout could be seen soon. Aggressive traders could go long above $104 risking to $96 and looking for gains to the $125 area." Looking back over an updated chart Wednesday afternoon I can see that XEC did not rise to nor above $104. Instead of an upside breakout we see that prices slumped to new lows for the move down.
Let's drill down in the charts again looking for any signs that a bottom is being made.
In the updated daily bar chart of Action Alerts PLUS holding XEC, below, we can see that the March/April lows were broken early this month. Volume climbed above 4 million shares as these new lows were made. If prices reverse back above $100 the pattern might be considered a bear trap, but we might be getting ahead of ourselves. Prices are below the declining 50-day moving average line and the bearish 200-day average.
The daily On-Balance-Volume (OBV) line made a new low for the move down signaling that sellers of XEC have been more aggressive. In the bottom panel is the 12-day momentum study. Price momentum made a higher low from February to June even though prices made a lower low -- this is a bullish divergence and could foreshadow a recovery in the days/weeks ahead.
In this weekly bar chart of XEC, below, we can see that prices are below the declining 40-week moving average line. This chart shows just a one week break of the March/April low. A strong close above $90 on this chart could become a reversal. The weekly OBV line shows a very small one-week uptick.
The slow stochastic is an overbought/oversold indicator (bottom panel) and prices are oversold. An oversold condition suggests that prices could rally but not that the must rally.
In this Point and Figure chart of XEC, below, we can see the long column of "O's" down to $83.08 and then a column of "X's" as prices recovered. There is a bearish price target of $80.35 indicated but a rally to $95.50 would turn the chart positive again.
Bottom line: A bullish divergence from our momentum study and a quick rebound after the recent breakdown suggests a potential price reversal rather than a continuation of the downtrend.
