In November 2006 it was trading at a price of $0.26. It then traded for three weeks in a sideways pattern before the stock started a long-term bullish trend that drove the price from below $0.30 to a high above $2.20 (points A and B on the chart) in early November 2007. That is a rise of 650% in less than a year!
Since this high posted last year, the stock has retraced a large part of this initial massive gain. As the historical prices data are recent, the shape of the chart appears to be obvious for traders. So far, the price action has not been too complicated to analyse. The initial bullish trend was clear, so is the corrective price action.
Thus the market sold back the stock towards the Fibonacci retracement ratios of the first one-year rise. The first significant pull back drove the price on the 38.2% level (point C), then on the 50% level, and eventually to the 61.8% (point E).
The stock found some good support as this level and has been tested and validated (points F, G and H) several times since last February. Moreover, this level had been a previous low during the bullish trend, at the bottom of the equity markets in August 2007 (point X).
This support level, around $1.05, has always been an inflexion point where the price action rebounded. The last time it occurred was last week. As the support line is likely to hold, the price should go higher.
Yesterday the MACD just reached its signal line. A higher closing price today would drive this momentum indicator to trigger a bullish signal by crossing above.
There is also a bullish divergence on the longer-term perspective. Look at the MACD and the Ultimate Oscillator. The Ultimate Oscillator uses the weighted average of three different time periods to reduce the volatility and false transaction signals. A bullish divergence occurs when the security’s price makes a lower low that is not confirmed by a lower low in the Oscillator.
This is the case here. Since February the stock reached the low several times, however the MACD and the Ultimate Oscillator do not confirm those low levels. A bullish divergence appears. It means that a significant rebound is probable on the medium-term as the bearish momentum failed to break below the support level despite several attempts.
The main target is likely to be $1.5, which has already been reached on a previous rebound (point Z). It’s potentially a 30% increase from the current price.
Only a break of the support line would trigger a new strong bearish signal.
Good investing.
Gabriel.