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Nexen Snags Bearish Brokerage Action, Yet Still Rallies

Examining technical and sentiment indicators for Nexen Inc. (NXY)

by Colleen S. King (cking@sir-inc.com) 11/28/2008 11:54 AM

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Formerly Canadian Occidental Petroleum, Nexen Inc. (NXY: sentiment, chart, options) explores for and produces oil, gas, and chemicals primarily in the U.K. North Sea, U.S. Gulf of Mexico, Western Canada, Yemen, offshore West Africa, and Columbia. This morning, the firm was smacked with some bearish brokerage action. Specifically, Dundee downgraded NXY from "buy" to "neutral," and slashed its price target from C$28 to C$27. Furthermore National Bank lowered its rating from "sector perform" to "underperform."

Investors seem to be disregarding the brokerage activity; in fact, the shares have added 1.4% today. The movement today could be due in part to the company announcing yesterday that it "isn't for sale." However, today's rally isn't a new thing, as the shares have added 79% since hitting a 3-year low of $10.81 a month ago. The stock was seeing resistance from its 10-week moving average. However, the security is poised to close its first week above this trendline since early July. This moving average could now act as support for the shares.

DAILY CHART OF BIDU SINCE JANUARY 2008 WITH 20-DAY MOVING AVERAGE

Despite the negativity seen by brokerage firms today, analysts seem pretty smitten with this oil concern. According to Zacks, only 5 brokerages currently rate the shares "hold" or worse, while 9 have doled out "buy" or better ratings. Additionally, Thomson Financial reports NXY's average 12-month price target is docked at $28.20, a 55% premium to Wednesday's closing price. If the stock is unable to hold on to this recent rally, brokerage firms could issues price-target reductions and/or downgrade the shares. Granted, as today has shown, the revisions may not have any major impact on the direction of the shares.

Short-term option players also seem to be betting that the stock is going to rally. In fact, NXY's Schaeffer's put/call open interest ratio (SOIR), which measures puts versus calls among options slated to expire in the next 3 months, is docked at 0.28. This number indicates that calls more than triple their bearish counterparts. What's more, this reading is almost at an annual optimistic peak. Specifically, short-term option traders have been more bullishly aligned only 1% of the time during the past year.

While the stock has had a nice rally recently, it still faces many levels of resistance in the near term. Furthermore, option players and brokerage firms are already quite optimistic, suggesting that there is little buying strength left for NXY.

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Nexen Snags Bearish Brokerage Action, Yet Still Rallies

Examining technical and sentiment indicators for Nexen Inc. (NXY)

by Colleen S. King (cking@sir-inc.com) 11/28/2008 11:54 AM

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