Kagara Ltd (ASX:KZL) is a diversified mining company engaged in exploration, development and production (zinc and copper).
The stock has been experiencing a long-term bearish trend since November 2006 despite sharp up and down moves. A downtrend is characterized by lower highs and lower lows. Here the historical high price (point A) posted at $7.81 is followed by lower highs (points B, C and D).
The downside of this bearish trend is a support line built by lower lows (points E, F, G, H and I).
There are no elements that allow us to think that this long-term bearish trend is over. However there are a lot of elements that allow us to think that the current rebound has some further development potential during the coming weeks.
First, have a global look at the chart: each time a low price is posted on this support line, a strong rebound (increase with double digits percentage) followed. A support which is tested and validated over the time gets stronger. This is the case here.
Second, the stock has been hammered during the last 2 months. It lost more than half of its value between the high posted in May (point D) and the recent low (point I). The price action bounced back a bit in last July (from point H) but it failed to retrace a significant portion of the massive decline. A new attempt is therefore expected as the stock still has been oversold but holds above the long-term support.
There is consequently a good opportunity for investors and traders to buy back the stock with a high risk/reward ratio. Indeed market players know that a breakout below the support line would quickly drive the stock further down. On one hand a stop-loss not too far below this support level is a low risk. On the other hand, as there is no major resistance near the current levels, there is a huge potential on the upside. The trade is worth it.
The MACD is slightly rising and has crossed above its signal line. This is a bullish signal.
The stock has experienced large swings and trend reversals since November 2006. A rebound that would build up some momentum could drive the price quickly higher. The next few trading sessions will give an indication about the strength of the rebound and its expected duration as the first intermediary resistance, the 23.6% Fibonacci ratio, should be reached soon.
If the price jumps above the recent small rebound, therefore above $3.6, the first target may be the 50% Fibonacci retracement level of the recent decline (between points D and I), around $4.3. Yesterday the price closed at $3.16 with an intraday high posted at $3.29. Therefore it’s a further 36% potential increase. Higher, the key level of $5.9 would become the main target on a medium-term perspective.
