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Since we last looked at Santos the market has been trading sideways in a narrow range. This is perhaps not surprising, given that Crude Oil prices have also been encountering resistance to further advances. At such times it is useful to compare other stocks in the same sector. For example, Woodside Petroleum (WPL:ASX) has, since its low in November 2008, consistently made higher tops and bottoms on the Weekly chart.
Chart 1 – WPL – Another Oil Stock
click to enlarge
Santos, by contrast, has been sluggish and choppy in its moves. So if you were trading Santos, and particularly if you were trading it as a proxy for Oil futures, you would always look for the stock which was making the best trends.
In the meantime, we can make use of the lack of activity in Santos to study it and learn more about its moves. One of the simplest ways of doing this is to look at prices. WD Gann stated, in his book 45 Years in Wall Street, that stocks make tops and bottoms according to some mathematical relationship with previous tops and bottoms.
The basic way to establish these relationships is by the use of Resistance Cards. There are 3 types of resistance card – highs, lows and ranges. A Highs Resistance Card takes a high price, such as the all-time high, and calculates percentages or fractions of that price. A Lows Resistance Card does the same for a low, but then projects multiples above the price of the low. And a Ranges Resistance Card divides the range between a high and a low.
This can be applied easily in ProfitSource using the Gann Retracement Tool.
Chart 2 – Highs Resistance Card
click to enlarge
Here you can see the all-time high price, made in June 2008. Notice how in July and August the market received support at the 75% level, or three-quarters of the high price. In October it fell below the 50% level but quickly got above it again. Alternatively, you can see that in July this year price was supported right on the 62.5% level. This illustrates that sometimes prices stop right at these levels, while at other times they are levels to watch. At the October low there was good confirmation of a reversal once price got above the 50% level of 10.32.
In Chart 3 below we look at a Ranges Resistance Card. This is the range between the all-time high and the all-time low, which was 2.10 in November 1992.
Chart 3 – Ranges Resistance Card
click to enlarge
You can see how this gives different prices to watch for support and resistance. The October 2008 low, which temporarily fell below 50% of the all-time high, as shown in Chart 2, found support just above the 37.5% level on this Ranges Resistance Card. This is what is called a cluster, where a high or low forms around two or more levels on different resistance cards.
You can also see from this chart where the market has been running into resistance currently around the 75% level.
Of course, Ranges Resistance Cards can be made up for any major range. Similarly, a Lows Resistance Card may be made up for, say, the all-time low of 2.10, or the October 08 low of 9.33. But for a good example, go back to Chart 1. Can you see the relationship between the November 2008 low of 26.81 and the September 2009 high of 52.98 on WPL? What is this telling you?
Knowledge is Power!
Tim Walker
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