ZAK MIR ON GKP – AFTER THE AUDIT AND CRACKING THE CODE
Interestingly enough, it was only earlier this week that I discovered that I had been blocked from following the Gulf Keystone Twitter feed! This may have been something to do with a rather bearish technical target that I came up with on the stock last year, one that clearly did not go down that well with the stocks acolytes… One that, sadly for them, came to pass yesterday.
In my defence however, I would suggest to the powers that be at the Iraq/Kurdistan focused oil company, that I have always actually been a great fan of the bull argument on the explorer. In addition, I have been mesmerised, as indeed have many private investors by the millions of barrels of reserves owned by this group. This overall positive fundamental position remains unchanged, even after the latest downgrade of estimated reserves at the key Shaikan site in Iraq. To my mind, the presence of 9.38bn versus previous guidance of 13.7bn barrels still does not change the idea that this company could be a great investment prospect.
Given the move from AIM to a full listing on the London stock market on March 24, it is not difficult suggest that today’s news could indeed be the last shakeout before the shares finally realise the potential that so many retail investors obviously have in mind.
However, as you might expect, the fundamental argument here may not be fully aligned with the technical/charting picture. What is interesting from my perspective looking at the chart pattern over recent months is the way that we have such a clear head & shoulders reversal breakdown at £1.60 from the beginning of last month, almost as if the smart money knew that there would be bad news ahead.
Even more noteworthy is the way that while today’s news is a modest setback, the share price fell by a very significant percentage indeed. The implication is that firstly we should take head and shoulder reversal signals seriously. This is especially when they have been playing out over the course of many months as we have seen here at Gulf Keystone.
Secondly though, the latest share price plunge looks to be one of the more rare examples of where the market is caught out by significant fundamental news and, in looking at the price action, news that appears, as ever on the LSE, to have been leaked.
We cannot say that we did not have a decent warning from the technical’s though and that a breakdown was possible even though you would not perhaps have imagined that the decline of nearly 30% in a day for the stock was going to be on the cards. The main clue that a big fall was on its way came from the extended topping out of the head & shoulders formation over much of the past year, something that I pointed out for the stock in the recent past.
The problem however is the way that given that Gulf Keystone is such a retail investor favourite, any suggestion of major share price weakness to come is met with a very cool reaction to say the least. The Twitter feed block being a prime example.
This means that the work of the stock market pundits in terms of a prediction game when you are dealing with a darling of the market can be fraught with danger in terms of the risk of pandering to the crowd.
It is a shame in this instance that my coverage of the stock was skewed by such considerations given the way that on the daily chart this was a relatively cut and dried head & shoulders reversal pattern that worked in a slow but consistent fashion. It then delivered a sharp breakdown that many CFD traders could have profited from in a very healthy way. A point to note as well is that the manner of the recent fall in the stock did follow the rules set out in Cracking The Code of Gulf Keystone. It is worth checking out my report on the price action of the stock and you can download by clicking below.
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