Zak Mir on Bowleven; the aftermath

By Zak Mir.

The breakdown in Bowleven (BLVN) this week is yet another reminder that the severest sell-offs can strike the most beloved stocks on AIM. Earlier in the summer, would be potash producer Sirius Minerals (SXX) also came a cropper.

It is often the case that companies such as BLVN and SXX attract die hard fans. Even suggesting to these people that all might not be as it appears with the company attracts howls of derision and cries of heresy. Sadly, it usually turns out that these “sacred cows” can lead “lambs to the slaughter”, if that is not too painful a metaphor to mix!

It interests me greatly that the worst kind of price ambushes can occur with these stocks immediately before dire news hits the market. What happened with BLVN this week was similar to what also happend to British Gas owner Centrica (CNA). Yesterday CNA collapsed, having rebounded quite strongly off its 350p main support line. This would have undoubtedly meant that most traders would have been long ahead of the warning from the utilies group, only to have suddenly run into losing positions as the bad news “unexpectedly” hit the market.

As far as BLVN is concerned the chart strongly suggestes that there were some price “tricks” played on the market, before it announced its monster dilution of its long-suffering shareholders. In the run-up to the BLVN breakdown it would have been very easy to comment on the stock that it was forming an extended base since June in a range between 55p and 60p. This apparent consolidation had pretty firm technical backing in the form of a rising trend line with multiple support points. In fact, when I commented on the stock in one of my recent videos, I noted this view, but I took a more cautious approach in suggesting when to go long. And I’m now very glad I did.

As long as the RSI line held and 55p support was maintained on an end of day close basis, I had been looking for further base building. However, the recent false dawns for BLVN served as a warning. The bull traps through the 50MA (now at 58p) suggested something wasn’t quite right with this stock. Therefore I took a more cautious stance, advocating waiting for an end of day close above October’s intraday high of 63p before going long. At the time, the argument against this was I was theoretically surrendering a sizeable chunk of initial upside, but of course this also meant not getting chewed up by this week’s car crash.

By Tuesday BLVN had actually fired a sell signal on the basis of the end of day close. This move happened before the market “knew” about Wednesday’s placement and my colleague, Ben Turney, is making good on his promise to alert the AIM Investigations Team about this matter. Of course, Tuesday’s mysterious sell-signal wasn’t a tradeable opportunity in a meaningful sense as the share price cratered at the open.

So where are we now?

As of writing, BLVN looks extremely oversold on a near-term technical basis, but there could still be further substantial falls. RSI is under 20 and there could be a bottom of March’s price channel, possibly as low as 32p in the next 1 to 2 months. Even the latest stakebuilding by Scottish oil tycoon Ian Suttie might do little to repair the damaged sentiment this stock now suffers from.

From a technical perspective, the earliest I would consider getting long again of BLVN would be a momentum buy trigger above the floor of this week’s gap down, at 49p. However, for now I’m staying out. The waters look too choppy.