Oil is currently trading around $54 and stocks have been bouncing for almost two months. This is an ideal context to look at oil-related stocks on the Australian equity market. Let’s have a look then at probably the most famous one, Woodside Petroleum (ASX: WPL).
First, a weekly chart to see the “big picture”: in November 2008, despite a false break that drove the price towards a low of $26.81 (point A on the chart), the stock found some support around $30, a previous level that was the initial point of a strong rally in late 2005/early 2006.
The large decline started almost one year ago, during the second fortnight of May 2008. The stock pulled back the price from $70.51 (point A) to $26.81 (point B). That’s a 62% fall.
However since February, the stock has been bouncing back and has retraced a significant part of last year’s decline. Indeed, the level around $43 is the 38.2% Fibonacci retracement ratio. The stock has posted a previous high there a few weeks ago before correcting. There is a resistance there that could then prevent the price moving higher on the short-term.
On the daily chart below you can see that yesterday the price closed at $42.13 after it hit an intraday high at $42.69. The current bullish trend is well backed by an oblique support line that goes through higher lows posted since mid-February.
The indicators are well oriented: the MACD has been rising for months now and has just triggered a new positive signal as it crossed above its moving average. The other momentum indicators have the same configuration. The RSI has just started spiking at the end of last week and did not yet reach its overbought area. Technically speaking, the overall configuration is clear: it’s bullish.
If the price action succeeds breaking above the immediate resistance at $43, then a further move upward should drive the stock to the main target, around $50. At $49 there is the 50% Fibonacci retracement ratio (which means that half of the decline between points A and B would have been retraced). The level of $50 itself is a previous low posted twice in last July and last September.
This is where a lot of traders who have been “long” of WPL should take profit and significantly pull back the stock.
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