possible strong rebound

Technical view on RSG from MM.

Among all the stocks that have been plunging for a few weeks or months now, some will continue to fall, some will consolidate, and some will bounce back. RSG is one of the stocks that should rebound strongly, because both technical and fundamentals seem to suggest such a rebound.

RSG is backed by the rising gold price. High inflation, a weak US Dollar, geopolitical concerns, all of these argue for higher bullion prices.

Technically, the rebound has already started as a low price has been posted on a solid support in an oversold configuration.

See chart here: http://www.moneymorning.com.au/images/20080717b.jpg

This support corresponds to a previous top (a double-top actually, points A and B on the chart) posted both in April and July 2007, around $1.54.

This resistance was cleared in last September (point C) when the stock started rallying above $2. After a correction at the end of last year, this level of $1.54 became a support (point D) and the inflection point of a new rally that drove the price until $2.50. It was a 62% rise in 2 months and half.

Last week the price action fell back to this support and bounced back once again (point E). It means investors consider this level as a good opportunity to buy back the stock. Indeed the technical indicators argue for such an analysis. The MACD is clearly at its lowest levels ever seen for RSG and it has already curved upward. A crossover above its signal line would trigger some further bullish momentum for the near-term.

The fact that the stock has been recently oversold is another sign that it should jump back sharply. The 14-day Relative Strength Index (RSI) and the 50-day Williams %R both show that the price action have recently moved into oversold area. The indicators however moved up and crossed above their trigger lines.

What is the target?
Well, consider that any pull back that would drive the price action below $1.54 would cancel this bullish view, and by breaking down the main support would give a new bearish signal.

If the scenario of sustainable upcoming rebound is correct, therefore a target of $2.5 may be realistic as it is the previous high posted in March and late May this year.