Derek Resources--Bullish Falling Wedge
Let me summarize Derek's (DRS on CDNX) Daily chart by saying that, despite the recent weakness attributed to selling of a large block of shares by a single Private Placee and consequent retreat from the 9/19/00 high of 1.18, the uptrend confirmed back in August is still intact; moreover, the recent decline has traced out a Falling Wedge, which is a short-term (up to 3 months) bullish consolidation pattern (ref. 1).
For those who may wish to reconstruct this, start with the Daily chart going back to August 1999. The anchor points for the previous down trendline are the highs of 9/7/99 (1.25) and 3/22/00 (1.00). That down trendline was broken to the upside on 8/18/00. Price returned to test this down trendline on 8/30/00 and then rallyed to the high of 1.18 on 9/19/00.
The upper surface of the Falling Wedge is the short-term down trendline since the 1.18 high which goes through four highs, giving the trendline credibility. Now it gets more interesting. The base of the Falling Wedge is the original down trendline extending back over a year to 9/7/99. In other words, the resistance offered by the old down trendline is now offering support during the current consolidation. Since 8/30/00 this portion of the previous down trendline has been touched 5 times, thus also giving the base of the Falling Wedge credibility.
Per ref. 1, Falling Wedges have a failure rate of 10%; i.e. there is a 90% probability that there will be a profitable break through the upper surface of the Wedge. The Apex of the Wedge is about 0.69 and will be reached 11/28 or 11/29. Average rise after a breakout from a Falling Wedge is 43%; also, prices should rise to the top of the pattern, which would bring it to 1.18. If the breakout occurred at 0.75, returning to the high of 1.18 would be a 57% move. It should also be noted that, for a standard error channel extending back to 5/3/00, the last week's price action is hugging the lower error band, a location which is often the starting point for strong upward moves.
1. Bulkowski, Thomas N., "Encyclopedia of Chart Patterns"
Active discussion thread on StockHouse board. Fundamentals at www.derekresources.com.
I will be holding the bulk of my position for anticipated significantly higher share values as the LAK Ranch oil deposit is developed over the next several months. |
