EGN Stock: Anticipating a Breakout
Fear is high and rising. The volatility index (VIX), which is also known as the fear index, currently resides at 21.3. Any reading above 20 is an elevated reading, suggesting that investors are concerned and are consequently bidding up the price of protection via the options market, which is causing the VIX to rise. I describe an elevated VIX as a market that is worsening a fever; until the VIX falls back below 20, this fever will persist and wild markets swings will become the norm.
So much attention has been focussed on the index values that many are failing to notice that a stealth bull market is quietly developing in the energy space. This sector currently contains some of the most intriguing stock charts, and it is the exact reason why I am focusing on Energen Corporation (NYSE:EGN) stock.
Energen stock is in the process of completing a number of technical price patterns that will suggest that EGN stock is likely to make a move toward higher prices.
The initial technical price pattern that caught my eye is highlighted on the following Energen stock chart.
Chart courtesy of StockCharts.com
This EGN stock chart highlights a technical price pattern know as a price channel.
A price channel is a technical price pattern that is characterized by a static level of price resistance and a static level of price support. The theory behind this price pattern is that a stock will oscillate between these levels of price support and price resistance until the channel is resolved, which will occur when the stock price either breaks above resistance or falls below support.
The price channel on the EGN stock chart has been in development since August 2016, and it has been defined by a level of price resistance at $14.75 and price support at $9.75. Two parallel trend lines were used to define these respective levels of price resistance and price support.
On March 28, 2018, Energen stock broke above resistance, and it is currently trading above it. In order to confirm that this breakout is legitimate, a confirmed close is needed, which would require another weekly close above this level of price resistance. Such a feat would complete the price channel, suggesting that Energen stock is free to appreciate because there isn’t a level of price resistance to contain it from advancing.
I marked the breakout as a question mark on the stock chart for two reasons. The first reason is that it has yet to be confirmed, and the second reason is based on the technical price pattern highlighted on the following Energen stock chart.
Chart courtesy of StockCharts.com
This EGN stock chart highlights a technical price pattern known as a cup and handle pattern.
A cup and handle price pattern is a technical price pattern that is characterized by two distinct troughs, where the first trough is much larger than the second. These troughs are created because a significant level of price resistance prevents the stock price from advancing beyond it.
The significant level of price resistance responsible for creating the cup and handle pattern on the EGN stock chart resides at $62.50. This level of price resistance was first established in October 2015, making it a fairly large price pattern, and the price channel highlighted earlier doubles as the handle for this pattern. The size of this pattern suggests that once the cup and handle pattern is resolved, much higher EGN stock prices will follow.
Currently, the moving average convergence/divergence (MACD) momentum indicator is in bullish alignment, suggesting that a breakout above $62.50 is a very real possibility.
MACD is a momentum indicator that uses the crossing of a signal line in order to determine whether bullish or bearish momentum is influencing the price action in a stock. A bullish MACD cross implies that bullish momentum is influencing a stock toward higher prices, while a bearish MACD cross implies that bearish momentum is influencing a stock toward lower prices. This indication is very influential and significant because a stock cannot stage a sustained move in either direction unless the applicable momentum is supporting it.
In July 2016, a bullish MACD cross was generated, indicating that bullish momentum was influencing the trading action in Energen stock, and true to its nature, the path of least resistance has been geared toward higher EGN stock prices, where higher prices have prevailed.
The MACD indicator is still in bullish alignment, and it is currently crossing the zero line. Crossing the zero line while in bullish alignment implies that a significant move toward higher prices can manifest in the not-too-distant future, which would be in line with the repercussions suggested by a completed cup and handle price pattern.
As a result, I am watching for a confirmed break above $62.50, because I believe it will suggest that this implied move toward higher EGN stock prices has begun.
I am currently neutral on Energen stock, waiting and watching for the completion of a very large technical price pattern. A confirmed close above $62.50 will complete the pattern, suggesting that much higher EGN stock prices are in development, at which point I will upgrade my neutral bias to a bullish one.