The Rising of STO

The oil and gas exploration and production company’s stock (ASX: STO) has been experiencing a positive year so far. Since last October actually. Two technical reasons however argue for a coming retracement, probably within the next few weeks.

STO has been rising from the low point posted on October 17 at $9.32 (point F on the chart). A recent high was posted on March 27 at $16.58, therefore 78% higher than point E. This is where a resistance line capped the price action. This resistance is a descending line that goes through the historical high price posted last year in June (point A) and through lower highs posted during the last 12 months (points B, C, D and E).

Click to enlarge

Last month, a new attempt to clear this resistance line failed on point E, at $16.06. A sharp pull-back drove back to the stock to $13.48 (-16%) one week later. The stock rose back during the last month to reach $15 last Friday. However the long-term resistance is likely to hold and prevent a
further rise above $15.5. The upside seems consequently to be limited.

When the price action corrected by 16% last month, it crossed below its medium-term support line that was valid since the inception of the rebound, in October 2008. This support was an oblique ascending line that was built by the higher lows. On the medium-term, this is a bearish signal and suggests that the momentum that developed the upward price action during more than 6 months is clearly weakening.

On the short-term, the indicators are well oriented. The volume spiked in May after the correction and created the bullish bounce. The On-Balance Volume has been soaring for a month, and the RSI is also rising. That’s why we expect, on the near-term, a further rise towards the resistance line, currently plotted around $15.5.

A breakout might be possible but the most probable is that the resistance line should hold once again. As a result, we anticipate a correction towards the intermediary support level of $13.5 (blue dash line).