More Upside For Santos

This story features SANTOS LIMITED. For more info SHARE ANALYSIS: STO

Bottom Line 02/07/14

Daily Trend: Neutral
Weekly Trend: Neutral
Monthly Trend: Neutral
Support levels: $13.92 / $13.83 / $13.11
Resistance levels: $14.75 / $15.80 / $16.90

Technical Discussion

Santos ((STO)) supplies Australia and Asia with oil and gas and has recently been focusing on exploration in countries such as Indonesia, Papua New Guinea and Vietnam.  Revenue for the six months ending on 31st of December 2013 decreased 9% to A$251.4m.  Net income decreased 58% to A$33.5 million.  This reflects a decrease in Asia of 5.0% whilst Australia decreased from $9.3m to zero.  Dividend yield is 2.1%.

Reasons to be ready for a buying opportunity:
→ The recent tour of the GLNG operations were well received by brokers.
→ Further Gas purchases should improve cash flow.
→ Price has headed down toward our target zone in choppy fashion which is indicative of a corrective movement.  This should be followed by a strong impulsive leg higher.
→ STO has recently broken up through diagonal resistance on both the weekly and daily charts.
→ Santos recently announced the first shipment of liquefied natural gas (LNG) from the $US19 billion PNG LNG project.

We took a look at the weekly chart last time which showed a large descending triangle as having just broken to the upside.  Quite often price will come back to the upper boundary of the triangle before reversing which is also a box that can be ticked.  This evening we’ll take a look at the daily chart which shows that buyers have stepped up over the past few days.  Volume has also been increasing recently which is a trait that needs to continue if a decent trend is going to materialise from current levels.  This is still our highest expectation with a break above the recent pivot high at $14.74 being a big step in the right direction.  As an absolute minimum we are looking for an (A) – (B) – (C) correction to the upside though it is at much larger degree.  In fact it kicked into gear way back in July 2012.  If the analysis is correct the final leg higher is only in its infancy offering plenty of upside potential.  In regard to the bullish pattern failing the line in the sand is $13.83 with a push beneath putting paid to our wanted leg higher.  For the moment though the bullish case remains firmly intact with no evidence on this chart that a top has been made.

Trading Strategy

We are currently holding long positions which were initiated in late May at $14.46.  The initial stop sits at $13.82 with no reason to amend at this time.  If you want to be involved you could still buy following a close above our SaR indicator which currently sits at $14.45.  As always this level will change as the days pass by.  The initial stop remains as just mentioned at $13.82.  We have two targets depending on your time frame.  The first sits at $18.87 with a second at $23.00 which is the measured move out of the large descending triangle.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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