Analysis: Quepasa Corp (NYSEAMEX:QPSA) 2011
Quepasa Corp (NYSEAMEX:QPSA)Â is an American-based company specialising in providing online social networking and gaming services to the Latin community through the website Quepasa.com. Most of 2011 saw the stock either falling or ranging within consolidation channels.
During the last quarter of 2011, QPSA underwent a Descending Triangle pattern, a formation that typically breaks downward nearly two-thirds of the time. This comes on the heels of a bear market that lasted nearly three months and followed extensive consolidation after a steep and accelerated bear market at the beginning of the year.
If QPSA trends downward after the Descending Triangle completes, the share will have dropped in price from a high of above 15.00 in January 2011 to below 2.93 in the early months of 2012. The Descending Triangle will confirm if price breaks the bottom converging trend line, one which just happens to be forming along support at 2.93.
Looking closer, recent stock activity strengthens the bearish signals given off by the broader share movement, as illustrated in the following chart.
In keeping with a Descending Triangle pattern, the share for QPSA is rebounding between a sloping upper trend line and a parallel bottom trend line, both of which are converging and will eventually form a point, assuming the breakout does not occur before then. During the most recent upward trend, a Bearish Belt Hold Candlestick Pattern emerged. While at its essence this pattern is a Closing Black Marubozu, it constitutes a Bearish Belt Hold in conjunction with the briefÂ up-trendÂ prior to its appearance.
The market leading to the Bearish Belt Hold is typically anÂ up-trend, as seen here. This contributes to the patternâ€™s classification as a bearish reversal. As a reversal, the Bearish Belt Hold is only nominally reliable, meaning that the prevailing trend transitions into a bear market in roughly half of all instances.
One of the complementary chart elements which can help traders better determine if a Bearish Belt Hold will result in a reversal or a continuation of the prevailing trend has to do with the candlestick formations that precede it. If the candlesticks prior to the Belt Hold are black in colour, then the Belt Hold pattern may be at last signifying that the bears are seizing control of the market and shifting the trend downward. If the candles prior to the Belt Hold are white, it could simply be an off-day for the bulls. Neither of these are hard and fast rules, of course, as the market can transition into either an uptrend or a downtrend under both circumstances.
The psychology behind the Bearish Belt Hold pattern is simply that the bulls were able to gap up on the open but could not sustain momentum. Instead, the bears drag price down to close near the dayâ€™s low. The drastic drop in price should be alarming to the bulls and serves as an indicator of imminent bearish control. How the market behaves in the wake of the Bearish Belt Hold pattern is vital to confirming whether such sentiments are valid.
Confirmation occurs when the market gaps down from the Belt Hold, when a black candlestick forms immediatelyÂ afterwards, or when the market closes at a lower price. When one of these three sequences occurs following the Belt Hold, traders can know with a higher degree of certainty that the market is reversing the previousÂ up-trend. Confirmation has not yet occurred for QPSA as traders wait to see whether the market will return to support at 2.93. The existence of support could be perceived as good news for the bulls who want to transition into anÂ up-trend.
The broader context of a Descending Triangle, however, shows the chances of a continued bearishness are greater than a bullish reversal. This could be evidenced by a breaking of support at 2.93 and a further devaluation in the stock. Longs should set their stop orders just below 2.93 to avoid losing more money should the recent market movements play to type.
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