Zak Mir on Iofina, Quindell and coming back from the dead!

On April 11^th I wrote a blog entitled “Back From The Dead” covering a mix of stocks which had come back from the brink, or looked as though they would recovery after taking a pounding… Given that I have been laid low this last few days with a fever and temp of 102f, the title of this blog is thus very apt on all counts!

My selection 2 weeks ago was Quindell (QPP), Iofina (IOF), and Globo (GBO). With the exception of Globo, anybody holding these stocks would likely wish they were six feet under!

I update the theme here with Quindell and Iofina…

Both of these stocks have been veritable private investor favourites over the past year as evidenced by the massive bulletin board commentary on them. Unfortunately, one of my definitions of a private investor favourite means that if you make a negative call on the company you can be quite sure you will either be insulted via social media, or worse, blocked.

The other definition which is key is that most of those investing in such companies do not fully understand just what the business is that they are backing. This point was highlighted to me in a conversation I had in March with a canny young fund manager who gave me a rather downbeat look when I was, I must confess, singing the praises of Quindell (QPP) and its then £2bn market cap. It was the kind of look that you know not to go against, the problem was just the timing as the stock proceeded to climb here. As they say in comedy (another passion of mine, and no not to do with my TA!), “timing is everything!”

Such conundrums are those I thus prefer to answer via charting / technical analysis. Following the “heads up” to keep out of the way, the shares promptly went on to make a new high over 45p! This turned out to be a bull trap double top formation. Keen technical traders might have gone short on a daily or weekly close back below the February 44.6p high, while my preference was to wait for an end of day close back below the 50 day moving average in the 37p zone given the way that the shares had bounced off this feature at the beginning of April. Nevertheless, the message given before the big drop was that if you wanted to play it safe you would only go long of Quindell on an end of day close back above the 10 day moving average then at 39p – as we were in the aftermath of a double top charting sell signal.

As far as the position now is concerned (neck, block!) it can be said that we are looking at a quite typical post rug (no, not my hair!) pulling event situation with the 200 day moving average currently at 22p a pivotal feature. It is also interesting to note the way that on the downside overshoot at the beginning of this week that support came in towards former autumn 2013 resistance on the way up in the 17p region. What we may expect to see now is plenty of gyrating either side of the 200 day line. However, we really need to see a retest of the 17p floor to make for the most ideal entry point and from that zone the stop loss just below 15p would be a strong one, with a decent chance of not being hit in my ‘umble opinion.

Just to give you an idea of how difficult it can be charting these minnows, and perhaps why not everyone might want to get involved with the Wild West (AIM) part of the stock market, we have Iofina (IOF).

Here, the recent rally in the Iodine producer has wilted in a rapid way with the technical explanation being that a bull trap retreat from above the 50 day moving average at 69p was seen as well as a failure at former December support during April.

Given the massive unfilled gap to the downside, in fact the second since December, it would perhaps be safer to suggest that bulls should stand aside on an extended basis. But, for those with risk appetite (masochistic?!), there are a couple of positives to note. The first is the way that there has been a temporary halt in the slide at a line of support from the end of August through 20p. There is also a line of support from January in the RSI window. Both of these could be enough to deliver an intermediate rebound from an extreme oversold position with the RSI under 30. That said, a retest of the logical target – former March support under 50p, does feel like it is ambitious. The stop loss on the bargain hunting argument is as tight as an end of day close below 20p / the 2013 support line.

Good luck all those trading this pair!