AIM stocks take a real beating on wall of worry and snowball of margin calls

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UPDATE (1) – 8AM – The 4th print in a week of the Put:Call ration in the US equity only data yesterday has only occurred once before in the last 3 years – rigth before the sharp rallies last August off the lows of last August. This ratio has one of the highest success measures I know of in predicting rallies in the market. Coupling this with very oversold stocks and compelling valuations and I’d say the odds are on the side of a sustained rally over the next 3 – 5 days (FTSE 5500, S&P 1360)

UPDATE (2) – 9AM – I get the feeling looking at the moves this morning in many of the commodity and oil stocks in particular that there is an underlying ‘bid’ to the market today. Seems we are finding a level that is tempting out some ‘solid’ money to be put to work.

UPDATE (3) – 1PM – I’ll be watching the options activity in the US closely this afternoon for a clue to whether there is still some unloading of stocks to go. Looks like all markets are stabilising and some of the beaten down stocks like GPX, KAZ, HOIL etc are catching bids. Still long.

END OF DAY WRAP – Looking at the options activity in the States just now, it seems that the bear sentiment of recent days is still quite prevalent – this is a positive for bulls as it means there is sideline money to come in and so fuel for further upwards movement. Some of the most beaten down stocks had a welcome respite today with both HOIL & GPX up over 6% and also XEL up 3.5%.

Over in flamenco land, bond yields on Spanish debt had a welcom fall today and so provided support for a good rebound in the Ibex – just under 4% at the close – making up most of yesterdays lost ground and so a positive technical signal. The chart below shows what looks like being a 4th assault on the top of the channel that the index has been trading in for the last 2 weeks. Fourth tests are generally successful and I still believe we will see 7400-7500 on the Ibex – quite probably next week.

SBM

AIM and in particular AIM energy have been hammered this week on eurozone debt worries triggered by the Greek election result. Throughout the last month the picture doesn’t look much rosier either. It has been another transfer of wealth from small investors back to “Mr Market” as prices plummeted over the last few days. Key support levels broken, stop losses triggered, forced selling on margin calls on spread bets and CFD’s… its look pretty ugly in many of the favourites. The stand out fallers for me are Gulf Keystone, Bowleven, Chariot and Xcite Energy all of whom have suffered falls not far from 20 percent in the last week.

The Falkland Islands shares have been beaten back after the euphoria around Borders and Southern’s Darwin well last month proved premature with a condensate gas find. Borders traded up to 128p or so at its peak, and despite a placing at 84p, now trades at 77p. This is despite the possibility of significant value in condensate which supported a placing at a zero discount to the prevailing market price at the time. Rockhopper too has had a tough time after a disappointing CPR (competent persons report) which gave resources lower than the market expected and of course the Greek tragedy has taken the legs out of the price. 

I have been taken aback by the scale of the falls, which mimic the carnage of last summer when euro zone debt fears wiped hundreds of points off the major indices. The Dow finished down 97 points last night at 12,835 but a weak outlook from tech giant Cisco, and disapointing Chinese trade data, means that there is no major upward momentum right now. 

As I said in the my last couple of posts, its a case of picking away at these levels in many of these AIM favourites and building a position for the inevitable rebound. The Dow industrials and FTSE have had their longest losing streak since August 2011, with 6 days of falls. 

After the Border and Southern excitement in April I cut back most of my positions in my fund, but my remaining Xcite and Ithaca are showing big losses at the moment – I’m sure in common with many investors! A dabble back into GKP, BLVN etc. bought at the close on Tuesday were sold at the open yesterday at a small profit before the falls later in the day in order to maintain some decent margin. Still I remain reassured by the fundamentals, even if the market values them a lot less now than it did a month ago! The former has 116 mm barrels of oil, the latter will be producing 10,000 barrels a day of oil from June and is in takeover talks. As we all know the market is more often irrational than rational!

Contrarian Investor UK

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