Since October 2007, Andean Resources (ASX:AND) has been trading in an indecision chartist pattern. Investors aren’t sure where it’s going. So they’ve built a triangle.
If the price action breaks out the upside line (Chart A), it is a “buy” signal, whereas it is a “sell” signal if the triangle is cleared on the downside (Chart B).
Chart A Chart B
Currently there are potentially both long-term perspectives. The support line goes through 2 previous highs (points A and B on the chart) posted in June and September 2007. It has been tested recently, on July 25 (point C).
The price rebounded there and is now moving towards the upside line of the triangle.
As the trading envelop narrows, the price action nears both support and resistance. So you can expect a break-out. We reckon it’s probably going to be up.
Why?
Recent price action argues for positive short-term momentum. The fall of 29.5% occurred between June 6 and July 25 (points F and C) posted a low at $1.22.
The 14-day MACD is bullish. The indicator fell at low levels recently and has now turned up. Moreover, the MACD crossed and rose above the signal line last Wednesday, which suggests that the stock price is likely to experience upward momentum.
Two other oscillators confirm that the price action may rebound after hitting oversold areas.
The 14-day Relative Strength Index (RSI) posted two lows below the oversold signal line in the second fortnight of July, and has been climbing back since. The 21-day Williams %R tool is also well oriented. It crossed below the oversold signal line, turned up and crossed above the same signal line. It’s a clear bullish signal.
Those different tools show exactly the same type of signals and indications about the coming price action, both on a 2-week and a 3-week perspective. In this bullish scenario, the price target may be the upside resistance of the long-term triangle pattern, around $1.50.
[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]
