Zak Mir on Iofina, Xcite Energy & the deadly hush…

The last time I identified a stock where the price action consisted of a deathly hush, it was at Iofina (IOF), and just a few days before the former CEO headed off for his sickbed on a permanent basis… Clearly, everyone and their mother sniffed this event (apparently lots of doctors trade the markets) after which the stock halved and has since recovered reasonably well. However, it is difficult to disguise that the severe plunge in the share price of the Iodine extractor was a calamitous shakeout of a highly followed bullish situation in which most retail investors were long and would have been badly burnt. The fact that we have seen the stock retrace more than half of its losses underlines the way that most traders who were distressed sellers panicked out and of course were not fortunate enough to make the capital back on the upswing. The message now is that while the stock price remains above former initial May support at 176p that Iofina could even make a full recovery back to the glory days of May and 250p.

This brings me to another closely followed stock where there has been an eerie silence as far as the price action is concerned – Xcite Energy (XEL). The silence is despite all the positive noises regarding the prospects for the Bentley Field in the North Sea and the £10m data sale – which certainly appeared to a decent deal. While the shares continue to remain popular on the Bulletin Boards, holders have had to be content with a mere 5p point gyration either side of the 200 day moving average (currently at 101p) over the past few weeks.

Presumably there is no imminent medical emergency on the cards here, but at least as far as any forensic technical analysis of the stock is concerned, it can be seen that despite the sideways price action that we now have an RSI reading well above neutral 50 at 55. Normally when we have flat price action but a push for the oscillator this far above 50 we can assume that it is acting as a leading indicator on price. Of course, leading indicators are never infallible, but as far as they go this is one of the more reliable ones.

We are helped in the “slow burn” to the upside argument by the way that in recent sessions, we have seen intraday support come in at and above the 50 day moving average – currently at 101p. Indeed, it may be that only an end of day close back below the last June 96p bear trap floor would really upset the recovery argument here. The reason that this is a situation worth following is that in theory, we have an overall rising trend channel in place here with its floor at 100p. The top of the channel runs towards last September’s135p plus peak – therefore it is understandable that the bulls will be crossing their fingers as far as the 100p zone holding.