Technicals | Apr 12 2011
April 11th, 2011
LAYMANS:
We haven't been overly convinced with Kagara's ability to make any sustainable trend to the upside for some time now and nothing has changed in that regard. Yes, a decent bounce appears to be taking shape but very importantly volume continues to decline as higher levels are reached. Not a positive sign. It isn't going to take a great deal of selling pressure to halt the recent advance and drive price lower again. Of course if the broader markets continue to show resilience then the company will likely be dragged up with it though it's unlikely to make much progress in its own right. The only slight positive is that buyers appear quite willing to accumulate around the $0.50 area. This was emphasized by the high volume that appeared at those slightly lower levels a few weeks ago. However, it doesn't appear buyers are willing to chase the stock higher at this stage which likely means lacklustre price action is going to remain the main theme. With a high of almost $6.00 back in late 2006 there isn't too much to be impressed with. I'd want to see a comprehensive break above $1.00 before entertaining the thought a decent trend may eventuate which is substantially above current levels.
TECHNICAL:
It seemed likely that wave-(c) was about to run to a conclusion last month completing the larger degree wave-A. The recent turnaround suggests this has been the way forward with wave-B in its early stages. In a perfect world a larger flat pattern will take shape which means the high of wave-(X) is going to be re-tested though it's unlikely to be impulsive in nature. The more bearish scenario would be for a zigzag to transpire which should result in the line of support being breached by a reasonable margin. Taking into account the weak relative strength shown by KZL it's certainly a possibility though it's difficult to see it coming to fruition. How price reacts if/when the typical retracement zone just above is tagged should give us a big clue as to which path is going to be taken over the medium term. Whichever way you look at it the patterns don't portend to a major turnaround any time soon. During combination patterns it's quite rare for the intervening wave-(X) to be penetrated which incidentally shows good confluence with the line of resistance. Unless those higher levels are breached we have to remain cognizant to the possibility that a sideways meander within a fairly broad trading range is set to continue over the months ahead. Not a great prospect but with no evidence suggesting a breakout is imminent in either direction there is no choice but to retain our neutral stance.
TRADING STRATEGY:
There's no denying the company sits within a strong sector though the weak price action of late doesn't lie. The volume bubble seen at recent lows is a positive attribute but it's not enough to suggest a major reversal is in motion. We haven't wanted to be involved from a trading perspective for some time and this remains the case. There are far better opportunities elsewhere so for now we'll continue to stand aside and reassess if/when the line of resistance is approached. However, it's unlikely to be any time soon.
Re-published with permission of the publisher. www.thechartist.com.au
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