Small-Cap Oil Company Ready to Break Out

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Published : March 11th, 2018
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Category : Companies Highlights

Technical analyst Clive Maund discusses why he believes this small energy company that is "off the radar" of most investors is ready to break out.

I recently wrote an alert on Torchlight Energy Resources Inc. (TRCH:NASDAQ):

"The huge short seller who has kept a lid on Torchlight Energy (TRCH on NASDAQ CM, last $1.23) for so long is soon to be annihilated, because the company is doing horizontal Frack drilling with results due out soon that for various reasons are expected to be positive, and the company has a huge land position that could contain a vast quantity of oil.

Technically the stock is under heavy accumulation whilst at the same time being suppressed by the short seller, but he is likely to be blown away once the results become available. Price looks like a coiled spring on charts. IMMEDIATE STRONG BUY. Full update later."

Evidently you are taking me more seriously these days, because after this alert was sent out Torchlight took off and ended up 11.7% higher on the day. Here is the chart for the time just before the alert was sent out.

And here is the chart for the close:

Although this was a good gain, it did not constitute a breakout and we would have to be very fortunate for our short seller friend not to show up again at some point soon and beat it back down again. However, the key point to note, and which is the reason that we disregarded him and went for Torchlight today, is that for both fundamental and technical reasons he is almost "out of time," and if he doesn't voluntarily remove himself from the scene, which will cause a sizable rally, he will be "blown out of the water" which will also cause a sizable rally. Why? Because fundamentally Torchlight is due to complete drilling of a horizontal Frack well soon, and there are various reasons to expect the results from this well to be good, and if they are it will imply that there is an awful lot of oil under Torchlight's extensive acreage. So if the results are good the stock will soar, with the price spike doubtless accentuated by the plight of the short seller, and as we will now proceed to see, the stock is in position to do just that, after completion of a giant 3-year long base pattern.

With respect to the strong technicals, on the 8-year chart we can see all of Torchlight stock's history from its inception, and clearly it has been long and tortuous. The first important point to observe on this chart is that it is now historically cheap, since it got as high as about $5.50 back early in 2014. Next, it appears to have been marking out some kind of base pattern from early 2015. Whilst it is initially rather hard to define what this base pattern is, on close inspection we see that it is in fact a giant Cup & Handle base, with an embedded Double Bottom within the Cup part of it, and it was the destiny of our short seller friend to push it lower and lower over the past year to form the Handle part of the pattern, which it is very important to observe appears to be completing above the line of support shown. The Accum-Distrib line and On-balance Volume are both positive relative to price, with the former looking very impressive, as it is already close to making new highs. These volume indicators are both bullish and imply an imminent upside breakout from the pattern.


Torchlight has disappointed investors for a long time now, including us as we had expected more of it, and most, including us, have left for pastures new and not bothered with it. For this reason the majority will miss the breakout and new bull market when it occurs, but on this occasion not us, as we like to check back on situations like this from time to time. The setup on our long-term chart looks very potent indeed, especially because it is now "off the radar" of most investors.

Conclusion: it looks very probable that Torchlight will break out soon into a powerful bull market, and it remains a strong buy here after this afternoon’s gain as it still only at the point of breaking out. Any short-term dip caused by the short seller will be occasion to accumulate more of it, but with the approach of the drilling results, it is less and less likely to react back significantly.

Torchlight Energy website

Torchlight Energy Resources Inc, TRCH on NASDAQ CM, closed at $1.33 on 8th March 18.

 

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