KAR finally broke out of its long term downtrend, by all measures, earlier this week. There are strong supports at 1.48 and 1.52 preventing any drastic drops in the immediate future. Past 1.62, there is a lack of depth and few significant resistances.
Furthermore, the width of KAR's Bollinger bands is currently extremely low, resulting in a condition called a Bollinger Band Squeeze. Bollinger Band Squeezes tend to precede major price breakouts, although they do not predict which direction the new trend will take. Oscillatiors quite clearly indicate the only way for this breakout is up. The last couple of days we have seen the beginning of what is yet to come.
From a technical point of view, KAR are a screaming buy.
However, from a fundamental point of view, the situation is more mixed. Contrarily to what I have seen posted on this thread, KAROON GAS AREN'T A GAS PRODUCER. In fact, KAR don't produce a thing. KAR possess oil producing assets. The extraction of oil from these assets would incur very high costs, far greater than the cost of production for the big players. At the current price of oil (POO) it is not worthwhile to commence drilling and accordingly KAR aren't. It is hard to see KAR begin drilling anytime in the foreseeable future.
The recent POO range of $40-50 is the worst possible for KAR. It is not high enough to justify drilling, nor is it low enough to financially trouble competitiors, which as the board explicitly stated at the AGM, would create an opportunity for the cut price acquisition of an oil producing asset. KAR's substantial holding of cash is in USD, which I personally see as a good thing. It's hard to see AUD move any higher than it's current value of 0.74 relative to the USD. In the next quarterly report we will see the increased cash value resultant from the fall in the AUD.
If oil prices remain at current levels over the next few years we will see minimal losses, if any. However, if POO exceeds $70 which is a very real possibility, albeit unlikely, we could see KAR return to the prices realised in its hay-day. In summation, KAR is ultimately a play on oil with positively skewed asymmetrical payouts, with the upside prevailing in the event of POO exceeding $70. Regardless, emanating very bullish technical signals for the next month or so.
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