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In recent articles I have been illustrating some of the difficulties that a market can present in trading, and Santos (STO:ASX) has been giving more than a few of them lately! In Issue 305 I showed a weekly chart which had the market sitting on the mid-point of the range from the June 2008 all-time high and the October 2008 low. At the time, I said that we needed to wait for a signal from the market, either that it was going to hold above the 50% level or that it was going to head lower. Chart 1 updates this earlier chart.
Chart 1 – Position on the Weekly Chart
click to enlarge
The first point to make here is that you will notice that the prices of highs and lows have changed. This is because, on 11 May, Santos announced an equity raising, the institutional component of which was completed on the 13th. When any share issue takes place, historical prices will be adjusted to take account of it.
In the week of 24 April, which was incomplete when the previous article was written, the market did continue to push below the 50% support level, but recovered to close the week above it. This was a sign of strength. The following week was an up-week, so as I had previously indicated, we would have been on the look-out for long trades.
The market didn’t give a signal. The following week it closed slightly lower, but still above the 50% level of the range. The 1-Day Swing Chart, however, showed that the minor trend was uncertain, as it was making lower tops and higher bottoms.
Chart 2 – 1-Day Swing Chart
click to enlarge
After that the market broke to the upside, but while its 97 cent range was greater than the previous 66 cent range, it only balanced the 99 cent range before that. The down ranges were expanding, from 55 cents to 68 cents, which was definitely not what you would expect to see if the move was going to be a strong one.
Then there was a 2-day trading halt for the equity raising, after which there was a very sharp sell-off. At this point we can only be grateful that the swing charts kept us safe. Watching the ranges on 1, 2, 3 day and weekly swing charts is very important.
If you look back to Chart 1 you will notice an interesting thing. The March top came in around the 62.5% retracement level of the June-October 2008 range. The fall in May ended around the 37.5% level. Those who prefer the Fibonacci numbers could substitute 61.8% and 38.2%, which are very close. The important point, though, is that the market found support at a technical level after a move that was strongly related to a fundamental event, namely, the equity raising.
Since the low of 14 May, which formed a small double bottom with the 16 March, roughly 60 days earlier, there has been a higher swing bottom on the 1-Day Chart. The market gapped up, forming a 3-day Island Reversal pattern, and is currently trading around that same 50% level that it has been oscillating around for the last 3 months.
Chart 3 – Current Situation
click to enlarge
Currently the trend is up on the 1-Day Swing Chart, but it is down on the 2-Day and Weekly Charts and uncertain on the 3-Day Chart. Given the overhead resistance of the 50% level on the one hand, but the double bottom and island reversal pattern on the other, together with the general bullishness of Oil prices, this is yet again a time to watch this market carefully for a signal.
Knowledge is Power!
Tim Walker
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