CHARTING STOCKS: Power Trading Packed With The Devil
By STEPHEN COX, CMT
A Dow Jones Newswires Column
NEW YORK -- The power trading scandal, involving bedeiviling insinuations that major players fabricated trades in order to inflate volumes and revenue, has cost major market capitalization in the fornm of falling stock prices.
Reputations, corporate and personal, have uffered. And as of Monday, two two industry executives have died this year.
El Paso Corp. Treasurer Charles Dana Rice was found dead in his home early Sunday morning, an apparent suicide, according to the company. Shares of El Paso (EP) fell over 18%, to as low as $19.30, on high volume.
Rice's death comes just five months after the suicide of John Clifford Baxter, former vice chairman of Enron Corp. (ENRNQ) as allegations of sham trading and accounting became public.
On Friday, El Paso, among others, in sworn statements to regulators, denied involvement in bogus trading.
Whatever the truth, in fact, the prospect that El Paso could drop into the single digits was on the charts last fall when the stock was trading around $45. Unless El Paso, now around $21.80, can recover swiftly and move decisively above $36.25 resistance, it's in danger of falling to $7.40 to $5.15.
El Paso arguably broke down on the long-term chart in the week ended Sept. 28 last year. That occurred within a week of U.S. stocks' major bottom on Sept. 21. In other words, El Paso's subsequent downtrend was fighting the important 2001 uptrend in the overall market. That by itself was a clear signal of the stock's technical weakness.
A move of El Paso Corp. below $10 could happen between the last week of June and mid-July.
Perhaps the first signal of the technical health of the power sector will come from Duke Energy Corp. (DUK), maybe the closest of majors to a technical upside breakout. Duke Energy is now trading just below $31. A close above $32.36 at the end of this week means that the stock may have bottomed at the $31 support area. This means, of course, that a weekly close elow $31 is a serious bear signal.
Also last Friday Duke Energy identified to regulators 13 out of over 50,000 power transactions that met the official definition of "round-trip" trades, or energy swaps that effectively inflated trading volume without creating economic value.
Power trader Dynegy Inc.(DYN) may have recorded a major bottom in mid-May, or else the stock is very close to a bottom.
Early in December last year, when shares of Dynegy Inc. were trading around $31, this column projected that the collapse of $34 support pointed Dynegy down $11.70, perhaps by May; the column concluded that a move below $11.70 would take Dynegy down to $6.80 by November this year.
On May 8 Dynegy fell through $11.70 support and recorded a bear market low of $6.62 on May 17. It's now trading around $8.20.
Of course, $11.70 is now strong technical resistance, and there's no question that a new uptrend has to be confirmed by a weekly close above that number. Conservative observers will want to see a close above $34 before concluding that the downtrend is over. The point is that Dynegy may have hit bottom, and a test of $11.70 is now more than likely. If $6.80 support is taken out, Dynegy has another shot at a bottom when it tests $5.15.
CMS Energy (CMS), now trading around $17.80, is near a technical breakout, which would be confirmed by a weekly close above $17.42. If that happens the stock would be good for a test of long-term breakout resistance at $27.30. If $17.42 resistance holds, however, the consequences are serious. In that case, CMS Energy will be headed back down to the February 2000 low of $12.77, the charts suggest. That's the sole long-term support above the stock and target support at $3.86.
Dynegy Inc. and CMS Energy Corp. admitted to large round-trip trades.
The weekly chart of Mirant Corp (MIR) is similar to Dynegy's chart in that Mirant may be set up for at least a short-term bottom. Between early March and mid-May this year, Mirant found weekly double bottom support at $7.60. But it will have to close out a week above $15 in order to break out to the upside. That's going to be a tall order in this climate. The stock is now trading around $8.25, and $7.60 support is at risk.
Technically promising, but technically precarious, is Williams Companies (WMB), which is similar to Duke Corp. for being close to a bottom. Williams Companies has recorded a Monday intraday low of $10.55. That's practically a test of $10.68 target support, a potential bottom. That number has to become more than potential if Williams Companies is going to be spared a move down to $5.50. A weekly close above $15.50 will have confirmed a breakout and turned the stock bullish.
Reliant Resources Inc. (RRI), now around $9, has to close decisively above $11.75 to touch off a rally. For now, it's perilously close to last-ditch support at $7.28.
Tyco Redux
Also on Monday the Manhattan district attorney's office confirmed an investigation of Dennis Kozlowski, Chairman and CEO of Tyco International, Ltd. (TYC). Kozlowski, under investigation for suspected tax evasion. Kozlowski has quit the company.
Tyco International bottomed in the first week of May at $15.25, a square hit on $15.21 target support. A weekly close above $24.23 would have confirmed the bottom. The stock topped out at $25.90 on May 24. It's now trading just above $16. Now, if $15.47 to $15.21 support is taken out, a move down to $9.45 is likely.
To try out the new Charting Markets weekly technical newsletter go to djnewswires.com
For more technical analysis see: Dow Jones Newswires, N/DJTA; Telerate, page 4247; Bloomberg, NI DJTA; and Reuters key word search "Charting Markets".
-By Stephen Cox; 201-938-2064; stephen.cox@dowjones.com
(Stephen Cox, a chartered market technician, is chief technician for Dow Jones Newswires.)
Data by CSI, Commodity Research Bureau
Updated June 3, 2002 4:01 p.m. EDT |
