Zak Mir on Bowleven – Last chance to buy in before the up-move accelerates?

AIM Stocks only really became something of an obsession on my part from the early autumn of last year as previously, I was mostly covering the blue chips or smaller companies listed on the main market. Therefore, my interest in the likes of Bowleven (BLVN) has all the zeal of those newly converted to the cause of chasing substantial short term price action – a cause that invariably ends in disappointment unfortunately on AIM! I still hold the ideal however that charting techniques, if employed correctly, should be able to allow a trader to capture the short term price gyrations – both long and short

The star call for Bowleven which I made by sticking my neck out in the Q1 Guide at the foot of this blog was the suggestion that at 65p the stock is firmly in the “accumulation” zone .  This patently has panned out quite well the stock making a “W” formation in recent weeks and the uptrend accelerating last week on upbeat noise from CEO Kevin Hart and the move, importantly, being accompanied by strong volume – generally a confirmatory signal.

The key technical’s as far as this bounce is concerned included the break above a falling 200 day moving average – sustained moves through a falling 200 day line are always regarded as that much more powerful / indicative of positive trend change. It also helped that post November, we have been mapping out, as relayed above, a classic W shaped reversal formation.  As far as the near term outlook is concerned, say the next month, we are looking at price channel from June with a top target as high as 95p. Ideally, the drivers for Bowleven in terms of it being able to hit this target, apart from it just having discovered hydrocarbons in Cameroon (!) will be the 50 day / 200 day moving average golden cross buy signal that has now occured, as well as the support from what was narrow unfilled gap to the upside at 77.97p and that has been filled today. No end of day close below this gap over the next few sessions would suggest that this stock may actually hit the implied 95p target within days rather than weeks.  At the same time, for those with the most bullish perspectives regarding the West African oil exploration group, any sustained price action back below the initial February support of 74p would be an appropriate stop loss on the daily chart time frame.

Weekly analysis

Moving onto the weekly chart, and we are reminded that despite recent creditable percentage gains that Bowleven is very much bumping along the bottom after a 2011 decline which saw the stock plunge from 278p to 130p within a week.  The weekly chart really helps us primarily by showing how much positive divergence there has been between lower price lows in H2 2011 and H1 2012. This provides what should be solid backing for the incipient bull run we are seeing at Bowleven. On the weekly chart, the price channel top drawn is implying a 90p plus target too while the blue 50 week moving average now at 72.5p remains unbroken on a weekly close basis –  a very positive sign.

Monthly chart

It may be just because I am a chartist, but the pattern for Bowleven on the monthly chart perspective seems to be very geometric, an almost artistic progression since 2005. The way that the price action has been captured here is within a falling trend channel over the past 8 years, with the support line projection currently running through 50p. Luckily for bulls of this stock, there is not only support from the green 10 month moving average at 68p, but also a triple tested 2008 RSI uptrend line – a feature in which I have a great deal of faith currently. As far as this timeframe is concerned, the call on Bowleven would be that we are running into a likely repeat of the 2007 – 2008 rally here. The implication is that the kind of positive consolidation we are seeing at present echoes the build higher that we saw in the stock in 2006. The target with this type of set up should be at least the former 2012 resistance zone at 150p plus, if not much more later in H2 2013.

Swen Lorenz: