Whitehaven Coal Limited (ASX:WHC) is a coal mining company with projects located in the Gunnedah Region of New South Wales. The company operates three open cut mines near Boggabri.
Since September 2007 the stock has been moving on a long-term slightly bullish trend. The price action is well backed by a support line that acts as a key level. This month the stock has declined to this support but there are good reasons now to anticipate a rebound towards higher levels.
How do we identify there is a long-term bullish trend? Well, as the price action has been posting higher lows for a year, the main direction is on the upside. Those higher lows constitute a support line which has a positive slope.
Those low prices posted are plotted on the chart (points A to F). The overall trend really started when the stock took off just a few weeks after its IPO, when it jumped from $1.45 to $2.40 (+65%) in two weeks in September last year. It climbed further up to $2.75 at the end of the month and has never declined below $2.5 since this time.
There has been a second sharp gain this year, between mid-May and late June this year, while equities markets were plunging back. WHC soared by 60% in 40 days to reach a historical high price of $4.79 (point H).
However the past 3 months have been a bearish period for the stock as it retraced from $4.79 to $2.91 (point F), which is a decline of 39%. This medium-term negative trend is characterized by lower highs (points H to L). Those points constitute a resistance line for the current price development.
The past weeks have been a consolidating phase where the stock moved sideways roughly between $2.8 and $3. The support line seems to hold firmly consequently it is likely that traders and investors will now push the stock on the upside after they have tested the downside.
The short-term and medium-term indicators are turning bullish after the stock jumped 5.4% yesterday. The 50-day Williams’ %R has crossed above its signal line therefore indicates that WHC has been recently oversold and that buyers are flowing back now. On the nearer-term perspective, the Stochastic Momentum Index has bottomed at the end of last week, has turned upward and crossed above its signal line yesterday. A further move on the upside is therefore expected.
The main target for rebounding prices will be the resistance line which is still valid, set around $3.4/3.5. However there may be a first intermediary resistance around $3.25 as it corresponds to the low prices of July and August. Previous lows often become new highs. That’s why $3.25 is likely to be the immediate target.
Good Investing,
Gabriel
