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TORONTO (GlobeinvestorGOLD)—Over the past year, shares of natural gas producer Canadian Natural Resources Ltd. have traced out a bullish, inverse head-and-shoulder pattern, suggesting much higher prices could be ahead. (Jump to Canadian Natural Resources's chart.) The week ending May 30 saw the stock close at a new 52-week high, also suggesting a higher price in future.
Further support for higher prices lies in the fact that Canadian Natural has traded above the upper Bollinger band resistance level and through the neckline resistance level of the head-and-shoulders formation. (Bollinger bands measure volatility and relative price levels over a specified period of time; they indicate overbought and oversold levels relative to a moving average.) In addition to the other positive signs, the moving averages (MAs) are pointing higher, and the moving average convergence/divergence oscillator also indicates that the stock is a buy.
The stochastic indicator, however, suggests some caution, as it confirms the Bollinger band's signal that the stock is overbought. A protective stop loss could be initiated just below the weekly low of $51.60. If the price falls below that level, it could drop down to support offered by the 10-week MA at $49.45.
Nonetheless, the implications of the new high close and the close above the upper Bollinger band are extremely bullish. The stock could trade higher and stay overbought before it corrects. The pattern's technical measurement suggests the stock could rally to $67 over the next two months.
Shares of TransCanada Corp. have traced out a saucer bottom over the past four years. Often a platform or handle will form to the right of the base, followed by the resumption of a new uptrend. The pattern, as in the case of TransCanada, is considered to be complete on the upside breakout of the platform. TransCanada's share price handle has also formed a symmetrical triangle. (Jump to TransCanada's chart.) Though we can now be confident that a new uptrend has begun, the stock is trading up against a long-term resistance area, and the stochastic indicator suggests caution, as the stock is overbought.
To work off the overbought condition, it could trade sideways for a few days. A close below $24, however, could see it drop to retest the initial breakout at $23. That said, the move above the handle formation and the small pennant pattern, which has formed since mid-May, suggest that a close above $24.50 could see a powerful rally to about $26.48. That would put the stock price within reach of the "exhaustion gap" area, which occurred July 6, 1998. At that time, the stock dropped $5.70 to close at $26.70. The exhaustion area will pose a challenge, but with the moving average convergence/divergence oscillator (MACD) giving a buy signal, it appears that TransCanada's share price will attempt to fill part or all of the gap, suggesting that the ensuing target could be $32.40.
With prior shareholder approval, TranCanada PipeLines Ltd. received all necessary regulatory approvals and certificates May 15 to change the corporate structure of TranCanada PipeLines Ltd. to a new holding company, TransCanada Corp., which owns all of the outstanding common shares of TransCanada PipeLines Ltd., becoming its parent company. The assets and liabilities of TransCanada PipeLines Ltd. remain with the unit. Holders of common shares automatically became common shareholders of TransCanada Corp. Each TransCanada PipeLines Ltd. common share is recognized as one TransCanada Corp. common share.
Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.