[Ed. Note: Gabriel sent us this look at Eastern Star Gas late last week. Please note that since then, the shares have moved up in price. We’re currently testing Gabriel’s trading methodology and are happy to share some of its early results, including the analysis below, in this space. Stay tuned.]

Eastern Star Gas Limited (ASX:ESG) is a company focused on the exploration and development of coal seam gas in Northern NSW for the Eastern Australian and potentially international LNG markets. The company holds interests in several licences in Victoria and New South Wales and utilises farm-outs to conduct exploration drilling.

This stock has been trading with clear trends for the past few years. The recent price action is even clearer. Basically the stock started rising like the whole equity markets in mid-March. During almost 3 months, the stock moved up and eventually peaked on June 10 at $0.93, coming from $0.30 on March 17. It’s a 210% jump.

Of course, in the current turmoil that shakes the financial markets, the stock has retraced a large portion of this triple digit gain. How much exactly? Well it seems that investors and traders were waiting for a solid support to generate a rebound.

This support has been identified. It corresponds to 2 technical indicators. First, if you take the two extreme points (points A and B on the chart) of the recent 210% jump and if you implement the Fibonacci retracements on it, the level of $0.54 appears as the 61.8% retracement ratio therefore a potential support.

This level is confirmed as a support as it is also the level of the 100-day moving average. This long-term moving average was previously a resistance line (between August 2007 and April 2008), it now becomes a support line for the current price action.

In exactly one month, form June 10 to July 10, the stock has lost 44% of its value. It’s the good timing now for a new rally.

Indeed, tow other indicators show that the stock had been hammered too low to quickly. The 14-day RSI and the 14-day Williams %R, two technical oscillators, reached recently obvious oversold areas before turning upward and eventually crossed above their respective signal lines. These are bullish signals. It means that investors do think that a low has been posted.

As a result, the stock already rebounded sharply last Friday by 6.36%. It should continue.

What is expected on the near-term?

A new bullish momentum is expected as a low has been posted and as the stock was oversold. In this scenario the new target may be the 38.2% then 23.6% Fibonacci ratios that will act as intermediary resistances around $0.69 and $0.80.

On the opposite way, only a break below the support line therefore closing price below $0.51 would be a further bearish signal.

[Ed note. Neither the author nor any of the employees of Port Phillip Publishing own shares in Eastern Star Gas. This article does not give trading or personal investment advice, but is intended to illustrate the principles of technical analysis. Consult your financial advisor before making any decisions.]

Filed under Technical Analysis by Gabriel Andre\

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