Akita Drilling Showing Strength

10/19/04 09:50:43 AM

by Kevin Hopson

Despite the stock's short-term downtrend, Akita Drilling looks poised to move higher.

Security: AKT/A
Position: Accumulate

Akita Drilling (AKT/A), which trades on the Toronto Stock Exchange and US pink sheets, is engaged in the oil and gas contract drilling business. Technically speaking, Akita has been in a steady decline since July, as the stock has continued to find resistance along its falling 50-day moving average ($25.32). However, the stock has been bouncing off its rising 200-day moving average ($24.90) in recent weeks and is showing signs of strength based on pitchfork analysis.

For example, note how Akita is bumping up against the top parallel line of the green pitchfork. This downtrend line is currently acting as resistance, along with the 50-day moving average. Also providing resistance is the red parallel (or warning) line. This trendline was drawn from the late July high. As you can see, prices recently reversed here. Given the significant amount of overhead in this area ($25.20-$25.40), one would think that the path of least resistance is lower. However, it is likely just a matter of time before Akita breaks this short-term downtrend.

Figure 1: Akita

Graphic provided by: StockCharts.com.

I say this because Akita failed to test the green median line prior to testing top parallel line. In pitchfork analysis, this is known as the "price failure" rule, which indicates price strength in this case. When this occurs, you normally see a break of the top parallel line and warning line (assuming there is one). In addition, Akita has been stuck in a potentially bullish trading range ($24.00-$27.50) since March. Since trading ranges tend to be continuation patterns and the long-term trend is positive, an upside breakout is likely. As a result, I would consider further price weakness as a good buying opportunity.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.