May 14th, 2008

WRES: Example of Symmetrical Triangle and New Highs

A reader asked for a reading on WRES (Warren Resources) and I thought, because stock chart interpretation is a visual sport, this was the best way to respond. Here’s the picture:

I have to admit, it’s as pretty a picture as you can get.

Having said that, I should also caution that I’ve found symmetrical triangles somewhat unreliable. They indicate that while buyers and sellers are coming closer together and starting to achieve equilibrium, it also means that neither group is able to achieve any sort of overwhelming momentum (either to move the stock up or to move it down). I’ve often found symmetrical triangles often morphing into a different, more extended pattern as buyers and sellers fight it out in establishing dominance.

I inserted a second, dashed line at around 15.12, a potential resistance trendline connecting 5-7 pivot points since 12/31/2005 (depending on whether you count the near hits in June 2006). Buyers were unable to generate sufficient momentum each of these times for either economic, industry or company reasons.

With some believing that the best moves for stocks in the Oil & Gas Industry Groups is temporarily behind us, it may be late for more big moves. The risk for any owner of WRES is that should it be able to break through the upper boundary of that symmetrical triangle, it would be tested and stalled at that dotted resistance trendline.

I think I’d give up the move from the current 13.77 to 15.12 (yes, that’s about 10%) as insurance and buy when and if it breaks through that resistance trendline. At least your money won’t take a loss if the stock sellers ultimately win and the stock breaks through the bottom boundary or the triangle or be sitting for weeks or months waiting for that break through the resistance at the 15.12 trendline.

Should that happen, the next objective would be the All-Time High at 18.35 only 15 months after the IPO. It’ll be a struggle getting to that point, much headwind from all those buyers who bought during the doubling after the IPO and have been waiting for 2 years to dump their shares without taking a loss. Once they’re out of the way as the stock clears 18.50, everyone will own the stock with gains and it will be clear sailing to new highs with a tailwind.

One more points in passing. I’ve mentioned several other Oil & Gas stocks here that recently broke through resistance trendlines. Just click on the Oil and Gas Industry link below to see those postings.

It’s just my opinion but thanks for the question. I put made a tickler to check back on this in September to see what happened.

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