ESG 0.00% 86.5¢ eastern star gas limited

a little bit of ta

  1. 201 Posts.
    Below is just a bit of Technical Analysis on one of my favourite stocks that I thought I would share. Please understand my intention is not to add fuel to the old FA vs TA debate. I use both and actually enjoy reading the odd financial report. Enough about my weekends though!

    The chart is a weekly candlestick (but I hve also looked at the daily and bar chart) that really does show how well ESG flirts with the fibonacci levels and trend lines. From October 2008 to Aug 2009 ESG rose a nice 97.5 cents (remember this number as we will use it again for the price extensions) to an all time high. For the Elliot Wave enthusiasts I believe we can see the rules satisfied for a 5 wave rise (except that wave 4 just dipped below the high of wave 1, but I am sure that we can dismiss that for now) and they knocked on the fib levels beautifully.

    I am sure that we all have seen the fall since August and now I believe the tables may have turned. In a previous post I mentioned this week would be important for the analysis of ESG and so I will discuss why below. We must remember that false signals are very common during this Christmas/NY break due to the lower liquidity of the market. With this is mind I will continue...

    ESG had fallen nicely into Decemeber and I believed was setting up to complete wave C three weeks ago at the start of December. I actually bought in at this time with a tight stop (too tight!) at 75 cents which was below the consolidation period up to July 2009 and well below the 61.8% fib level that the stock was sitting on at the time. But it did break through and this could have been someone trying to push below this level to cause a new wave of selling, which is quite common around important levels of support. They make people get stopped out, etc so the price falls making more people sell.

    So I was happy being on the fence again and fully expected the stock to then go down and test the 50% fib level at 68c. Afterall, 50% is a very common level. Plus the money flow was still dropping (which is a volume indicator and more accurate for distinguishing buying vs selling than OBV or just looking at a histogram) and the downtrend line was still being respected and weekly swing chart was down.

    Then we got the fundamental trigger of the all important flow rates and that changed the picture. We had a good week leading into Christmas and as you can see on the chart the first week in months that broke the downtrend line. This week just gone the stock went nowhere, which was great because it didnt go down and meant that a second weekly close above the downtrend line was made. This is great news. Plus the weekly swing chart has turned up. To add to this we can see how strong the downtrend was by looking at the counter trends that were only one weekly bar (look at the swing relationships on the bar chart, not candlesticks) that set the downtrend line. So this adds importance to the fact that this little run is looking less like a counter trend and possibly the start of a new trend.

    But there are risks with trading off this low as follows:

    1. The time of year (Xmas/NY Break mentioned above).
    2. The monthly swing chart is still down (this is for longer term trading).
    3. Money flow hasn't really turned yet, meaning that there are still some sellers in the market place.
    4. We didnt hit the 50% fib level (no real drama)

    So where to now? Thats what I want to know anyway... Remember we ran up 97.5 cents. So we can use that to try and work out what levels will be important. This is not about predicting the future, but helping work out probabilities and making sure we are ready when the time time comes. I bet the stock either pauses or stops within a few cents of some or all of the levels I will calculate below.

    If we look at the 38.2, 50, 61.8 and 100% levels we get the following prices from the 73 cent bottom a couple of weeks ago:

    (38.2% x 0.975) + 0.73 = $1.10

    (50% x 0.975) + 0.73 = $1.21

    (61.8% x 0.975) + 0.73 = $1.33

    (100% x 0.975) + 0.73 = $1.70

    So my first target is $1.21 (watching it closely around the previous peak of $1.165) and second target is $1.70 (now that's wishful thinking!).

    So before I trade ESG again I will consider the following:

    1. Do we have fundamentals to support the target price - I believe so (and probably well beyond once we truly know and understand the commercialisation plan and Newcastle, gas swaps, etc)
    2. Am I trading wih the trend - not yet, but there are signs we will rise from this point and my justifications above about previous support/resistance, breaking of the downtrend line, counter trend theory, fib levels and the Gann Swing chart all help to justify an entry.
    3. Where's my stop? - 71 cents. This puts us back well under the previous downtrend line and below the last low of 73c, which would trigger a sell on the Gann Swing chart too.

    Good luck ESG holders. I think I will join you (again) next week!

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