ZAK MIR OILER OUTLOOK – ITHACA ENERGY, HERITAGE OIL & OPHIR ENERGY IN FOCUS

There are fewer areas of the stock market that are more compelling, or should I say, addictive, than the second line oilers. Adding to the excitement, over and above the volatility of the underlying commodity / geopolitical issues affecting the sector, we have the way that many of the companies within the sector are not among the most liquid on the UK stock market.

A good example to start off with comes in the form of Ithaca Energy (IAE). Here the main event in the recent past has been the unfilled gap to the upside in September from 130p to 136p. Quite surprisingly even after an extended period of consolidation over the next few months the shares were unable to even get close to filling the gap, with support running down to 138p just after the gap was made. Since then though the price action has reaffirmed the unfilled gap signal in the sense that we have progress within a rising trend channel from May with the 50 day moving average now at 149p generally backing the stock. The implication is that at least while there is no end of day close back below the 50 day line one would be looking for a fresh upside break. The favoured destination at this point is the 2013 resistance line projection as high as 180p as soon as the end of next month.

Moving onto Heritage Oil (HOIL) and it is interesting to see how the shares managed to deliver a somewhat mysterious turnaround during December in terms of the overshoot below the floor of a rising trend channel in place on the daily chart since May. That said, the recovery of the 20 day moving average now at 151p at the beginning of this month did unleash a decent recovery, and it is expected that this process could continue even though the stock is currently grappling with the falling 50 day and 200 day moving averages at 164p. Nevertheless, the way that the shares have been able to recovery former July / August support under 160p relatively easily suggests that there is still decent upside here. The favoured destination over the next 4-6 weeks would therefore be as high as the last November 185p intraday peak, with only sustained price action back below the 2013 price channel floor / 10 day moving average at 156p really even beginning to delay the upside scenario.

Finally it can be said without much contradiction from the bulls that shares of Ophir Energy (OPHR) have not exactly been “user friendly” in the recent past. Indeed, there have been multiple false dawn recoveries all the way down, culminating in the worst of them, a massive gap to the upside in November which was promptly reversed. While there was a clue that this was just a bull trap by the way that the stock was unable to get anywhere near holding the falling 200 day moving average then just below 380p rhe current position is that although would be bottom fishers may be pointing to a higher January low at 296p versus that of December at 293p, there is little doubt that this situation remains highly speculative. Therefore those going long may keep an eye out on the 308p initial January gap floor as their end of day close stop loss. Ideally, above 308p would pencil in the 50 day moving average now at 327p and a likely 2-4 week timeframe target.

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