On Demand

The Longer The Base, The higher into space it goes

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Exco Resources (XCO) is an independent oil and natural gas company with various interests in east Texas, north Louisiana, Appalachia, and the Permian Basin in west Texas.

Exco has an interesting history. Back in November 2010 the chief executive of the company Doug Miller offered to buy the company for about $4.35 billion dollars ($20.50 a share). For some reason or another the deal did not go through and the stock started to tank right alongside natural gas in the summer of 2011. It continue its serial decline until finding a bottom at around the $6 dollar level (April 2012).

KEY POINT
More importantly ever since the stock broke below $8 in January 2012 the stock has not been able to break above that level. In fact $8 has been a lid for the stock since then. The bottom line is; that the stock has traded sideways for 8 months with a flat resistance level-$8, and a pattern of higher lows.

NEW INVESTORS
These last eight months probably shook out all the old investors and new ones probably came into the stock, one of them being Wilbur L. Ross. Mr. Ross who is known for specializing in leverage buyouts and distressed businesses has been aggressively buying the stock in the open market. In June alone he bought six million shares putting his stake at roughly 32 million shares. To boot, Oaktree's Capital Management Howard Marks recently disclosed that his fund now owns about 37 million shares. So while the stock was basing for eight months, what it was really doing was getting a whole brand new set of investors.

THE TRADE
For the past eight months, $8 dollars has been resistance. The stock finally got above that level yesterday. This stock is a buy technically going through and staying above $8, and buy on pullbacks as long as it keeps the pattern of higher lows.

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3 Comments

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MainStInvesting: XCO is actually getting in that sweet spot of 70% or so "coiled" to where if it get's above $8 soon, it's much more likely to make a nice, sustained move above 8. I add this as a caveat to Kira's comment as I agree long period's of consolidation can lead to sustained breakout's, however if the support and resistance lines are converging, momentum is lost if price is mainted to far into the apex.

In any case, nice analysis on XCO, and
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MainStInvesting: enjoy your blog.
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KiraBrecht: The longer a market consolidates, the more momentum it builds up for a long, sustained breakout move.
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About the Author

FrankZorrilla

Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC. He began his Wall Street career 10 days after his 20th birthday when he became a Series 7 licensed stock broker. He was a full service broker for 13 years. In 2011, Zorilla decided that his success, no non-sense approach and expertise were better suited as an independent rather than under the reins of a brokerage and so he formed ZorCapital LLC. He is a momentum based trader who uses technicals, fundamentals, and sentiment analysis to base his buys and sells.

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