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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.

Graphic provided by:
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:

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