Well, it’s certainly something of a contrast to last week here in “God’s own County” – cool and rainy for the last 48 hrs. Eeeurgh! Here’s hoping we haven’t already seen “summer” in these rain lashed shores…
The Mrs and I went to see a cracking movie last night called Tracks which is based on the true story of a young Australian lady in the mid 70’s who, inexplicably, decided that she wanted to cross the inhospitable terrain that is the Western Australian outback all by herself bar her faithful companion, a black Labrador called “diggety”. If you have not seen it then the movie comes with my recommendation and is a reminder of how “going against the crowd” and “doing the hard thing”, not just in markets, but in life, can be incredibly rewarding.
Gulfsands Petroleum
We start with Gulfsands Petroleum, which regular readers will know is a personal holding of mine and is also held within our Titan funds.
We commented on the situation last week as you can see here – http://www.spreadbetmagazine.com/blog/reflections-on-a-sunny-may-weekend-by-r-jennings-titan-inv-p.html and it’s fair to say that last week’s price action was kind to the bulls. Speculation is that Waterford are to imminently mount a bid for the company, likely in anticipation of a lifting of the EU sanctions against companies doing business in Syria should Assad win the elections next month. We have as much of an idea as to the next man whether the bid rumours are true but we are certainly encouraged by the message from the chart below in which we can see 5 positive factors – a clear break of the long downtrend, a new daily high for the year and, importantly, on rising volume, a golden cross confirmation, a potential inverse head and shoulders formation and a push through the top of the rising trend channel. From a pure technicians basis these look to me to be targeting 100p IF they can get through 75/7p which acted as support previously. I will be looking out for further volume next week and any RNS announcements to see if Waterford have moved closer to the key bid trigger threshold of 29.9%.
A quick one on Twitter which I have traded personally in recent weeks for modest profit (after having shorted the stock at the turn of the year in the $60’s and $70’s but closing much, much too early!). A few of my market associates have been long of these and have seemingly “done money” in recent weeks. It seems to be a “don’t touch” stock at the moment. Looking around the internet at consensus commentary and it is hard to find a bull of the stock too. As ever, contrarian nose twitching…
Do I think the stock is a bargain now? Resolutely no. Still valued at circa $20bn, I think it is about $18bn overvalued and in future years the stock will be trading in low single dollars. Negative EPS is projected through to 2016 and growth is slowing. Further lock ups expire in the next couple of months and I still fail to see how it is anything other than a mass email and celebrity following mechanism (of which I personally have zero interest). Is there a trade opportunity however? I think so…
The chart below shows just where the stock has come from and how oversold it is. Whenever a stock is down 9 days in a row, particularly large caps in the States that are not easy to manipulate like many market maker driven stocks in the UK, then odds are some type of rebound is growing in likelihood. Bears target the IPO price of $26 and there seems to be consensus it will reach here soon. My guess is it will, and breach it, but not without a sharp rally back towards $40 first. I opened a long here Friday.
Japan
A quick mention here of the chart and price action on Japan which went up all last week and brought our bull position back in play. The RSI moved back above 50, the rise almost passed by unnoticed and I sense the bull is not back in. We are therefore happy to hold our core position here and still anticipate the old recent highs of 16,300 being taken out before the year is out. As we can see from the chart, 14600 is the key level to break the downtrend in place since the beginning of the year. A move through here towards 15000 would be very encouraging indeed.
Silver
Another quick mention here as my stance is well known (see here – http://www.spreadbetmagazine.com/blog/titan-with-silver-the-most-oversold-in-30-years-heres-why-we.html). The CoT stats out on Friday were pure manna to my eyes. We can see in the chart that the “managed money” group is almost neutral and moving towards a net short position, whilst the already exceptionally low natural short position held by the producers was reduced further. This is an exceptionally rare situation.
With the price holding firm in the flag pattern that has been building for weeks now this is additionally encouraging for the bulls as “speculative” money (“managed money”) exiting is being taken on by strong hands. The next 2 weeks are likely to see a sharp move in my opinion as the “tension” from the range trading is released and both my own and our funds money is on a break into the early 20’s
Record Highs in U.S.
Once more the U.S stock market confounded us bears as it eked out a new record high going into the long holiday weekend and captured the key 1900 level. From being net short here in our funds, we have been neutral for many weeks now. The chart below was held out by some other websites as a warning sign (there are already hundreds out there!) but I read it differently.
Those commenting that it was negative point to the US350bn dollars of stock sold short (grey line on the chart) – reaching a new high and level similar to 2007/8 just before the GFC. However, considering that the US stock market has had net new equity additions over this period, the alternate view is that the dark blue chart which shows U.S stock sold short as a percent of the total stock market cap is actually not at an elevated level. Two ways to read this – bearishly in that should the market finally roll over then short covering will not brake it, or bullishly in that historically this measure has risen to nearly 3% before the market broke.
We continue to sit on the fence now here and are wise enough to realise that this bull market has caught many very capable and respected hedge fund managers out. We do not want to be one of them even though we have a natural bearish leaning on many fronts.
I am pleased to report that our flagship Global Macro fund closed out last week near a record high and we remain poised to take advantage of our strong liquidity position in anticipation of the long awaited correction in US markets. If you’d like more details, click the banner below
Clear disclosure – Richard Jennings and/or Titan funds have holdings in Gulfsands Petroleum, TWTR, silver and Japan. This piece should not be taken as an advocation to buy (or sell) these instruments and you should always take independent financial advice in relation to your own circumstances