A zak Mir bombed out small cap oiliers special – FOGL, RKH & BOR
Last week saw one of the occasional meetings in London between Messr Mir and Messr Jennings, our ‘umble founder of Spreadbet Magazine and now Chief fund manager at Titan. Something I half forget is that as well as being a man who is passionate about trading the markets and putting his money where his mouth is – indeed doing so via the Titan vehicle, Mr Jennings is no mean technical analyst in his own right… This is on top of the special ingredient that I know all the best traders and investors have, and which it is almost impossible to teach – instinct. However, given my love of technical analysis, I would suggest that it is by studying price action that you get an insight into what your fellow trader is thinking and where we are in the ever cyclical end greed/fear swing of the pendulum.
The other aspect, over and above a TA / instinct mix that our “Dear Founder” seems to be keen on is identifying bombed out and so undervalued asset classes. Such an approach can lead to trouble as far as individual stocks is concerned – the failed banks in 2007/8 were a good example of this. But, it is still possible to triumph with unloved companies. This is especially the case if you add in some charting. Of course I am bound to say that! For instance, on the radar as far as a potential recovery is concerned are some of the smaller oilers. The 3 example I present today could just fit the recovery bill.
Taking Borders & Southern Petroleum (BOR) first, and it can be seen how there has been an extended slide since the early 2013 bull trap reversal through 30p. This followed the big meltdown of the previous year. It is usual in such situations for it to take a long time for the bulls to regroup – if at all. But there are usually clues as to whether there will be a recovery from such bear runs.
The three main clues are usually that new lows start to become less severe, then there will be an RSI bullish divergence / multi tested support lines and to finish off, higher lows and / or a weekly close back above the 200 day moving average. In the case of Borders, we have seen higher January and March support versus the December floor. There has also been a triple tested January support line in the RSI window running at the 40 level. This would suggest that we are perhaps towards the end of the slide here. However, after such bearishness, one would probably want to see a higher low above the 200 day moving average at 13p before jumping in. The alternative is simply to attack the December 2012 support line running towards 10p should the stock revert back there. Either way, the reward if the base has been made is a swift- less than one month – return towards the former August 2013 resistance zone around 15p on any successful break of the 200 day line.
Moving on, and it Is interesting that the day preceding our discussion of bombed out oilers coincided with the big rebound in Rockhopper Exploration (RKH). There are a couple factors here of note. The first is the way that the 20% decline during March did seem to be a little on the excessive side given the extensive losses here already and despite the dead cross sell signal between the 50 and 200 day moving averages last month. There was also a modest overshoot of the floor of a falling price channel from through 98p.
But what really backed up the sharp bounce, and still backs such the idea of recovery, is the way that despite the mauling between February and the beginning of April, we actually have an uptrend line in the RSI window. This suggests great positive divergence and carries with it the possibility that while there is no end of day close back below the recent low around 93p, that the upside here could be as high as the 115p – 120p former February / early March support zone over the course of April. This is even if Rockhopper resumes its breakdown subsequently.
Finally, as far as Falkland Oil & Gas (FOGL) is concerned, it can be said that we have another stock attempting to regroup after a pounding a couple of years back. The pattern we see currently on the daily chart looks to be that of a possible bullish falling wedge pattern. We are helped over and above the chart appearance by the way there has been an uptrend line in the RSI window since the beginning of December, now running at 40. While it has to be admitted that there could still be a last test of the floor of the formation now running towards 22p, the reluctance of the stock to remain below 24p since this time last year would suggest that if there is a break of this zone it would only be a temporary and therefore could offer bargain hunters a decent opportunity. That said, cautious traders would quite understandably go for a break of the main 2012 resistance line at 26p on a weekly close basis before taking the plunge on the upside. The target at that point would be 32p plus 2012 resistance in perhaps as little as 6-8 weeks following the momentum buy trigger.
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