Zak Mir on being caught out
I suppose being a share tipster is like being a politician, you are rather obliged to accentuate the positive. As a technical analyst, there is perhaps the scope for greater accuracy in terms of timing and targets as compared to a “normal” fundamentals based guru, but of course, ironically, greater error. This is because even with all the skill and the will in the world, there are times when a profits warning, takeover, or drilling failure were simply a bolt from the blue that were not forewarned on the charts.
There is also the “where angels fear to tread” factor. My philosophy is that the time when a call on a stock or a market may be most useful is, in many instances, before the results come out, or just after some shock news and I feel obliged to stick my neck out at such times. After all, this is when a good prediction would be most valuable. There is rarely any element of me playing it safe or perhaps unwittingly, not attempting not to undermine by batting average / track record (editor interject – and which is a pretty good one). It seems to be the case that the whole purpose of delivering a charting view is to do so at a time when traders and investors are faced with the greatest uncertainty. Clearly, at such points, you are set up to look like either Tim Berners Lee on the 20th anniversary of inventing the world wide web, or Ed Miliband on the World At One!
A good example of this contrast comes from the recent chart of Balfour Beatty (BBY) going into this week’s profits warning – the second in a year. The overall charting picture here had to be regarded as negative given the way that the massive gap to the downside in November remained unfilled despite a couple of attempts in January and February this year to reclaim it. Even worse, there was another unfilled gap to the downside in March just below 260p. The easiest thing was actually to go short and stay short from last month. However, a bear trap rebound from below 235p to start April appealed to the barely functioning optimistic side of my personality. The gap higher on April 11th backed up this idea and while there was some upside through 250p, this was very much going against the flow – colloquially speaking – someone trying to be flash.
Arguably the best case scenario now here, even if there had been no profits warning, would have been a test of the black 200 day moving average at 277p or more realistically the 50 day moving average at 256p. Instead, there was a failure just below it, and an island top formation. It should now be the case that the end of day close back below the initial April support at 220p will take the stock down to the implied target of an August support line projection sub 180p over the next month.
Moving onto Ruspetro (RPO) where on Monday the shares closed at 35.5p, having delivered not only a gap fill retreat from the 50p zone over the previous week, but also a three day close back below the initial April 37.5p resistance. My view was that enough had been done to allow the stock to retrace part or even all of the sub 20p recovery. However, there was the proviso that those who were cautious on the short argument (the editor of Spreadbet Magazine) might wish to wait on a break below the 20 day moving average then at 35p (just slightly below the end of day close) before going short. It was helpful advice given the massive rally on Tuesday, although I was really of the view that Ruspetro would head straight down and not get even close to 40p. There are obviously times when even the best laid plans of mice and chartists can and do go awry!
I close with Baobab Resources (BAO) where I would defy anyone to explain to me the turning on a dime and gap higher through the moving average recovery here, certainly on non fundamental lines. Indeed, the shares appeared to be doomed to failure going into this week, with 10p not an overly pessimistic target as it would have represented a test of the pre December resistance zone. In fact the lowest we traded was 12.3p. Some of the mystery is explained by a rebound off the falling RSI support line, but this is esoteric to say the least. What can be said now is that while there is no end of day close back below the gap floor of 17p, Baobab could nudge the blue 50 day moving average zone at 23p even if that is the end of the dead cat bounce.
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