Zak Mir on Triple Trouble – ESSAR ENERGY, LONMIN & EXILLON ENERGY

Today’s threesome on the stocks front is straight from the brain of Spreadbet Magazine founder Richard Jennings, who appears to have picked on three of the more painful / volatile / unpredictable stocks on the London market. This may be a quirk of fate, or it may be deliberate! Either way it is a challenge, and I am looking at the charting position of Essar Energy (ESSR), Exillon Energy (EXI) and Lonmin (LMI). Indeed, after this particular trio, almost any stock or market would give the impression of being a walk in the park…

As far as Essar Energy is concerned, it can be seen that a ‘rolling top’ on the daily chart managed to survive for much of 2013, until finally the neckline support that had been in place and starting from June at 117.7p gave way at the end of October. The breakdown from that point has certainly been brutal. It can be seen how most of the price action since the autumn has been contained within a falling trend channel in place since June. A point to note regarding the decline is that much of the price action on the way down was capped by the 20 day moving average now at 67p. Ideally, to make things “safe” traders would be waiting for an end of day close back above the 20 day line before going long. But it seems we can do better than that. The reason for the optimism is that Essar looks to have bounced off the floor of the falling 2013 price channel at 55p, an echo of the December bounce in the 70p zone. The likelihood now is that going long one would have a stop loss just below the 55p level and then target late December resistance at 75p on a 4-6 weeks timeframe.

Moving along to the next on the list and we have what arguably provides us with the greatest trading challenge – Exillion Energy (EXI). This is because the stock has more than halved since the December peak through 300p and we are left wondering whether, now at just below 150p, there is an opportunity to bottom fish? The answer so far appears to be in the negative, on the basis that we are still in the aftermath of an unfilled gap to the downside through 200p. To me, I would regard the extended consolidation by the stock since last month as a bear flag, with only a move back above the broken June uptrend line / old December support at 152.75p implying a new leg to the downside is not on its way. The potential target below December support is towards the former June support at 113p on a 1-2 months timeframe.

Finally, after the recent horrors of Essar and Exillon it can be said that the present position at Lonmin (LMI) is something of a party by comparison. The post December period has witnessed a double bounce off the floor of a rising trend channel from June – now at 300p, as well as a rising trendline in the RSI window from the middle of last month. The long stance is additionally backed from price action over the past couple of weeks by a bull flag based at the 20 day moving average at 310p. The implication being that at least while there is no end of day close back below the 20 day line the upside here could be a partial or even full retest of the post August resistance towards 360p over the next 1-2 months.