This is an exploration company focused on the discovery of commercial oil and gas fields with projects in several of Australia’s producing Basins. It is one of the recent additions to the Australian Small Cap Investigator portfolio – that’s why I can’t reveal to you which company it is! That’s for subscribers only.
This stock is less volatile than the Energy Index (red line on the chart). While the index is now at the level it was in mid-August 2007 (around 12,000 points), the company is actually on its historical highs after it soared in late February.
Over the long-term, there is a slight bullish trend as the price action did not post any new lows since mid-August 2007 (point A). A recent low has been posted in December last year just below point B. It acted as an inflection point and was the starting point of a sharp rally that drove the stock until it reached a high yesterday in intraday session.
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The previous high point was the one posted in June 2008 at point C. This previous high that may have been a resistance point has been easily cleared last week. It may eventually become the new support point now, as previous highs typically become new lows.
Indeed, the downside is likely to be tested soon as the stocks is obviously overbought on the short-term. The different oscillators spiked into extreme high zones: the Relative Strength Index (RSI) has reached yesterday the level of 85 (everything above 70 is usually considered as the overbought area). The Money Flow Index (MFI) has also jumped above 90.
The key reversal signal is the price action realized yesterday. The stock opened at ‘$X’, reached ‘$Y’ but eventually fell down and closed at ‘$Z’, in a lower volume than the previous bullish days. This is an indication than the rebound should be over now and that profit-taking should drive the stock lower. Indeed this level also corresponds to the 38.2% Fibonacci retracement ratio of the rally posted between December 15 and yesterday (points B and D).
The Stochastic Oscillator has already curved downward and has crossed below its signal line, and the technical Momentum indicator has also curved downward. The next few days are likely to be bearish.
However, on the medium-term, the outlook will remain positive if the price holds above the new support line (point C).