Chart Review – Santos Sags

By Kenneth Robson on January 7, 2015 • ( 0 )

“Shit happens” is a crude saying, but it sure rings true when it comes to investing in the stock-market.

No matter how vigilant you may be, sooner or later you are likely to be caught unawares on the losing end of one or more of your positions.

Santos is a highly regarded SA blue chip Energy stock which has been a consistent producer and explorer of oil and gas reserves in Australia. This daily chart shows how hard shareholders have been hit. with the share-price halving over a four month period commencing when a double top chart appearance formed at the end of August last year.

Santos falls over a cliff

This is a time for making a prompt decision; the sooner the better!

If you find yourself one of those still holding shares when the share-price is bouncing off $7 support from $15, you may well ask yourself whether you have missed the chance to sell without undue loss. Is it now better to hang-on for a recovery, or at least hang out for a higher price. After all Santos is a quality stock, and the oil price will inevitably at some time rise again. Such sharp declines are often followed by quick rebounds.

Your decision may well depend on your investment strategy, and investment time-frame. You should however have planned for exactly this scenario. There is no one correct approach.

I have plotted the Fibonacci extension levels on the above chart. They suggested that if the present downwards momentum continues, the next target is likely to be at $3.75. You may worry about how disappointed you will be if instead of falling, the share-price rallies, and you miss out on the recovery.

You should however bear in mind that even if the share-price fails to decline further, the growth potential is likely to be greater elsewhere.

Immediate exit preserves your capital, reduces the risk of more loss, and does not prevent you from re-buying, probably more cheaply, later.

My trading plan

Stop/loss sell if the share-price falls below $7 with a possible target at about $3.75 to rebuy if there is evidence of turn-around following price stabilisation.

Buy if resistance at about $8.50 is broken with a target for recovery of between $10.20 and $11.20, corresponding to the 38.2 and 50% retracement levels.