ZAk Mir on Sirius, Gulf Keystone and the Deerhunter

What a mess Sirius (SXX) – without its Minerals, so far has proved to be! And how this situation has nosedived in such a short space of time… There have perhaps been two main phases in the recent past when Sirius was a true head scratcher. The first was going into the summer when the share price appeared stable in the mid to upper 20p’s, and the company was doing deals all over the place to supply Potash, freshly extracted from the pristine North Yorkshire countryside (a place close to the former editor’s heart!).

At that time, it appeared that while one could allow for a wobble in the run up to planning consent for the £1bn mega mine, that at least while the stock remained above the main support line drawn on the daily chart through 20p, that there was little reason to blink. It is at times like this in the life cycle of a company that you are essentially obliged to take the view that if everyone else is playing it cool, then you should be too. Or perhaps, more appropriately – how could everyone be fooled on this one? (You can’t fool all of the people all of the time as they say).

Indeed, on this issue I am reminded of another binary event or is that a Russian Roulette situation waiting in the wings – Gulf Keystone (GKP). Here, the verdict on whether Excalibur is going to get its hands on a significant chunk of the Kurdistan focused explorer’s assets is due by the last week of August. So far it seems that traders are also playing it cool here and, indeed, playing it as if Gulf will win – after all, the stock is hanging just above where CEO Kozel sold out in April. The key question is whether all the people will be fooled on this one too?

The price action of Gulf Keystone going into its Excalibur day of reckoning as revealed on its daily chart shows a classic triangle formation in place since the Spring, and of course triangles traditionally represent indecision in a stock or market. The formation has its trendlines converging between 160p and 180p, with the implied strategies being either to trade within this narrowing range, or wait for a clearance of 160p – 180p on an end of day close basis and follow the winning direction. In fact this looks like a classic options play where as we expect a large move by the end of the month, buying both out of the money calls and puts simultaneously could be the way forward.

In contrast for that other stock of the moment – Sirius Minerals, the path ahead is in some ways even more problematic than Gulf Keystone. My weapon in such situations is to look at the charting position, and while it can be helpful, you do not always get all the answers. True, losing the 20p level did spell curtains for the uptrend at Sirius, but it was a long time coming  – long enough to give the impression that the fall might not come at all. The position now though is by no means clear cut.

What the pure chartist would say is that we now have a support line projection at 9p with Sirius – the floor of a falling 2 year price channel. Is this the point to catch the falling knife? And who would want to? Would it not be preferable, knowing how many burnt bulls are most likely still in this stock, to wait on a reversal signal that has a decent chance of being more than a dead cat bounce.  On this basis, it could be argued that a higher low for Sirius and a break back above 20p might be the entry criteria of choice. In the meantime we can re familiarise ourselves with The Deerhunter’s most famous scene…