Oilsands Quest Approaching Reversal Point?

01/16/08 08:56:01 AM

by Kevin Hopson

The two-month downtrend may be coming to an end, as pitchfork analysis points to a possible reversal soon.

Security: BQI
Position: N/A

Oilsands Quest has been in a downtrend the past two months but things may be looking up for the stock. If you look at the 0-1-2 pitchfork (light blue, Figure 1), the median line accurately projected the completion point of the third wave, or second leg down. Meanwhile, the 1-2-3 median line (dark blue) correctly targeted the end of wave 4 (second leg up). When pitchfork analysis confirms the third and fourth waves, you can be more confident that the stock is in the final leg of its trend.

FIGURE 1: BQI

Graphic provided by: StockCharts.com.

Obviously, nothing is certain but other indicators support the theory that a bottom may be developing. For example, you will note that the relative strength index (RSI) failed to put in a lower low when the stock sold off in mid-December, as illustrated by points 1 and 3 of the light blue pitchfork. The same can be said of the moving average convergence/divergence (MACD), which has been steadily moving higher despite price weakness the past month or so.

Right now, the stock is stuck in a short-term trading range between $4.10 and $4.70. Even though the wave 5 low should surpass the wave 3 low ($4.00), this is not guaranteed to occur. Instead, a stock will sometimes form a pattern (trading range, triangle, and so on) during the final wave and then break to the upside. I have seen this happen with other energy stocks in the past.

Let us be conservative, however, and assume that Oilsands Quest will move below $4.00 before putting in an ultimate bottom. If this comes to fruition, I would consider $3.80 to be major support. This is the site of the black trendline and the top parallel line of the light blue pitchfork. It is also where the median line of the 0-3-4 pitchfork (green) is converging. The 0-3-4 pitchfork is specifically used to project the ultimate completion point of a trend. As a result, $3.80 could be a significant reversal point for the stock. Coupled with the fact that short interest is extremely high (short ratio of 5.6 days as of December 11, 2007), there is a lot of potential buying pressure to push the stock higher.

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.

	Glen Allen, VA
E-mail address:	hopson_1@yahoo.com

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ANDREWS PITCH-FORK

Oilsands Quest Approaching Reversal Point?

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