Zak Mir on “betting the Farmville” and the folly of crowds!

It may not be too surprising to learn that the brief of this particular Spreadbet Magazine blog given the routing of the tech sector this last month, is to look for beaten down stock opportunities in this arena. This of course flies in the face of current “wisdom” as applied by the financial media and many City analysts, and is precisely why we are doing it!

While it does not always pay to be contrarian, it can very often be the case that when the herd thinks that the market is going one way, the canny speculator has an opportunity to make money. Take a look at this blog here for example which was another “tour de force” by our dear founder and now Titan head – Richard Jennings – http://www.spreadbetmagazine.com/blog/titan-has-the-bear-finally-begun-to-growl.html.

The title of the blog actually misleads as he concluded with – “We highly suspect that on this occasion, certainly in Japan, that this is a bear trap that will prove to be a false break,” and “we would argue one can hardly find a better proposition in global markets today than Japan… With the above in mind we are staying the course on our Japanese exposure”. Moral of the blog? Listen to Mr Jennings and his convictions and always know when to bet against the so called “experts” and the crowd.

Those who have been following the performance in recent months of the Titan funds will realise that these blogs are most certainly ones to read.

Anyways, I start off with the first of the three possible recovery plays and what could be regarded as a somewhat eccentric choice. This comes in the form of FarmVille owner Zynga (ZNGA) where the rebound from the 2012 meltdown in the shares continues in what could be described as a three steps up / two steps down fashion.

What is appealing about the latest set up here is that from a technical perspective, the 30% decline from March peaks towards $6 has quite a geometric look to it. Indeed, the shares fell almost as quickly from early March as they rose in February. But the buy triggers that I am interested in currently centre around the rebound we have just seen from a combination of the floor of a rising trend channel in place on the daily chart since June and the 200 day moving average around $3.88.

The real attraction here from a chartist’s perspective though would be if a near-term low has been put in place. This is because we would possibly have a double buy signal both off the floor of the rising price channel from last year and also as a failed gap fill of the two unfilled gaps to the upside is seen at the end of January. What we tend to see time and time again is that stocks (or markets), that are too strong to fill the floor of a gap to the upside then deliver ultra strong rebounds from these type of conditions. This may seem a rather optimistic perspective with Zynga, but at least as things stand near the rising 200 day moving average, it is not difficult to anticipate at least a modest dead cat bounce.

As far as Cisco Systems (CSCO) is concerned, I have chosen another slightly “left of field” tech play, if only on the basis that when you think of Dotcom Bubble 2, that this is perhaps not the company that first comes to mind. Nevertheless, there has been quite a pullback from the dizzy heights of September last year and the $26 plus territory.

What is attractive to me is that in the recent past the shares have been attempting to clear a still falling 200 day moving average at $23.02 having come off the back of a golden cross buy signal between the 20 day and 50 day moving averages. If you add in the way that the RSI trace has just bounced off neutral 50 to stand at 57, then we appear to have a reasonably non volatile entry point for the shares of the networking equipment giant to target the 2012 price channel top towards $28 over the early summer.

To finish, if there is any company which reminds us of the heady days of the Dotcom Bubble, it would have to be internet giant Yahoo! (YHOO). What can be seen here on the daily chart is that following a double top for the stock during March in the $40 zone, that there was then quite a sharp pullback that became more evident along with the sharply declining 10, 20, and 50 day moving average’s.

In fact, the triple dead cross between these lines at the end of last month took the shares back towards the still rising 200 day moving average at $34.21. Nevertheless, the way that the 200 day line is still rising means that one would have been looking to buy the dip in the stock, and it could very well be that in the wake of the latest well received Q1 update that the shares are able to build renewed upside momentum. The big technical buy trigger here would of course be an end of day close back above the $40 main resistance, to target as high as July’s $50 resistance line projection on a 1-2 month timeframe following the break.