a new trend at carnarvon

A New Trend at Carnarvon?
By Gabriel Andre

Carnarvon Petroleum NL (ASX:CVN), formerly Metana Petroleum NL (ASX:MTP), is an oil and gas exploration company with projects across Australia and Thailand.

The stock really started trading significantly in late March last year. Before that the price was moving below the $0.010 level, it was therefore a penny stock. In a high liquid volume, the stock took off to post a first high at $0.28 in late June 2007 and climbed to $0.38 in last October (point A on the chart) before correcting a bit.

This point A is the initial point of the current long-term support line. It was high that became a new low when the price succeeded to breakout above this resistance level. Indeed, this support has been tested and validated several times since last October. The two previous times (points B and C on the chart), the price action bounced back sharply after hitting this support line.

The third time has occurred last week, on August 13, after the stock fell by almost 57% in less than 3 months, decreasing from $0.80 to a new low posted on the long-term support line at $0.345.

The stock has already rebounded by 15% in one week as the price closed yesterday at $0.395. A bullish momentum may build up.

How is it possible to detect the beginning of a new trend? As you may know, price and volume are the key factors that measure trends and market direction. Actually it is the volume that creates the price. In other terms, the price is the shadow of the volume. Consequently the volume is to be tracked. The theory behind this is straight forward. Rising prices coupled with increased volume signifies increased upside participation (more buyers) that should lead to a continued move.

For such a purpose we study the Volume Oscillator (there are other volume indicators). It displays the difference between 2 moving averages of a security’s volume (here 15-day and 50-day MA). As volume levels are increasing, shorter-term volume moving average will rise above longer-term volume moving average. This is similar to how shorter-term price moving averages rise above longer-term price moving averages when prices are increasing.



Thus, the Volume Oscillator is used to see if overall volume trends are increasing or decreasing. When it rises above zero, it signifies that the shorter-term volume moving average has risen above the longer-term volume moving average, or that the short-term volume trend is higher than the longer-term volume trend.

One typical interpretation made by traders is that rising prices coupled with increased volume, and falling prices coupled with decreased volume, is bullish. On the other way, if volume increases when prices fall, and volume decreases when prices rise, the market is showing signs of underlying weakness.

Here the volume and the price have been rising together for one week. It’s a bullish sign. The MACD confirms this positive signal as it has crossed above its signal line yesterday after it reached very low levels last week.

The price should go higher then. A retracement of the recent 3-months decline is likely. On the medium-term, the 50% Fibonacci ratio level, set around $0.57, may be the main target for the price action.

Good investing,

Gabriel Andre

Money Morning www.moneymorning.com.au