Arguably, UTW looks like it has been in downtrend since 2014Q1. See the black line on the chart below.
The stocked plunged on 15.8.2015 when it issued its trading update (Point ‘A’). It announced that revenues were ahead of market expectations. That did not stop the fall, however. There were concerns about its accounting, and Roland Head did an excellent job of capturing the market’s scepticism in a November post.
There was a sharp bounce after the fall to ‘A’ that turned out to be a trap. That’s something to beware of. Bulls must have thought that the stock had reached full capitulation, but that turned out to be wrong.
I think trying to play capitulation is a dangerous thing. You can get quick zig-zagging like we saw at A. You can even get what you think is a proper reversal for a week or so, only for the stock to decline again.
LMI (Lonmin) is an example of the latter setup. Six months ago the stock was at 144p. In late September is was at 14.75p. The stock reversed, reaching a high of 41.25p on 9 Oct. It then resumed its decline downwards, where it sits at 1.28p presently.
In UTW, the bottom was not reached until point ‘B’. The shares reversed quickly to ‘C’. They then treaded water to ‘D’, before diving back down to ‘E’. I have illustrated the move by a red line.
The “inverted bowl” traced by the red line is a common enough technical pattern. The shares crash, charge up to a lower high, tread water for a few weeks, and crash back down to the pre-established low.
The big question is: where next? My answer is: I truly don’t know. It depends on the fundamentals of the company. What I have noticed is that common patterns are to trend slowly subsequently, either in the upward or downward direction. The chart does not tell you which it is at this stage.
All I can say is that the shares are down 38% over 6 months, and I don’t like touching those kinds of stocks.
Good luck, all.