breakout imminent (with charts)

Hi guys,

The technicals are a nice reflection of the underlying market dynamics at the moment so I’ve figured out (hopefully!) how to embed some charts.

On the weekly chart, you can see we have been in downtrend for a while and the rig announcements in early may put us upward and outside of the medium term downtrend. The downtrend ended with a period of consolidation with 28c resistance (the horizontal line) and we are yet to pass that but more on that below.

Looking at the daily chart on a longer term horizon, its been in a pretty clear downtrend for a while now, with the top being marked by the peak of the paloma hype and probably other factors (its before my time). The price has then tracked within upper and lower channels up until November, where it entered a sideways consolidation. At this point I’ve put in the 28c line. It has tried a couple of times to break through this resistance in December and February but has fallen back. We then put in a lower high and then dropped to the low at 17.5c on low volume (pretty suspect). This lower high also formed the 5th touch of the upper channel in the downtrend. I think the definition of the channels is important to get an idea of when we first look like changing direction.

The rig announcements shot us out of this downtrend on high volume but we have been hitting our heads on 28-28.5c since then.

Here is a daily chart zoomed in to look at the consolidation period. You can see we have been moving within strong support and resistance of 21.5c and 28c and had 4-5 cracks to break out to the upside. It was concerning to see us drop out of the range and this is what held me back in my purchase but with the activity pending, it was always just a matter of time. Very low volume traded over that march-april period is a bit suspect.

So with the rig announcements and updates, we have rocketed back into the range and maintained a high trade volume, but still been unable to clear the 28c resistance. More recently, we have been filling gaps and putting in higher lows, which is starting to look like an ascending triangle. Generally this is a bullish sign and signals a change in sentiment and illustrates the time it takes to distribute surplus stock to new buyers. As the stock continues to get absorbed, the retracements are less and the price compresses, eventually breaking out strongly in the upward direction as new buyers outweigh sellers. The inverse occurs where support forms the horizontal line and pressure is to the downside.

Going to an hourly chart clearly shows the resistance and shows the higher lows nicely. Check out the time we have spent up around that 27-28.5 range around 18-24 may. After each sell-off, the price recovers and has another crack, generally on higher relative volume, which is a good sign. As time has gone on, we are getting to the pointy end of this triangle and we are looking strong despite the greater market dynamics (how many down days have we had lately!?). This is a great sign that investors are treating this stock separately to the wider market because of its risk-reward and this is a prime reason why I focus on plays like this, because the lead up to spud tends to be independent of the greater market.

So we are pretty compressed now and only trading between 26.5 and 27.5c. I think it will only take a couple of strong market days and an announcement of the rig moving to location to get this stock kicking. Looking at the triangle, I’m still tipping mid june for action, so the next week should be exciting.

In my opinion, breakout to the upside is imminent