Zak Mir on Zanaga Iron Ore & Co – Coast clear to go in?
I think that I would have to confess that I have learned more about the markets and trading in the past year, than in the past twenty. Certainly having a couple of books published in the past year has helped gather my personal store of knowledge, but an advantage of writing about the markets in public and getting it both wrong and right (on occasion!) is that you are forced to keep raising your game. In addition to this, everyone and their mother is now apparently an expert not only on charting (after ‘dissing’ it during the 1990s and 2000s) but the intricacies of Quantitative Easing as well as the prospect of tapering. Therefore, you need to have an edge, with the best one being that you are always improving in a field which is relatively unique.
On to today’s stock and it is a revisit of Zanaga Iron Ore (ZIOC), where a break to the upside has been on the cards for some time given the overall pattern here of a bullish falling wedge. However, the problem with such a formation is that the set up can be in place for quite some time with the stock edging lower within the channel until all of a sudden there is a gap to the upside. The issue is therefore if you are not already in the stock before the turnaround is delivered, that it can very often be too late to get on board. Or, of course, you may not feel like going long after the jump has been made.
We can see the result in terms of Friday’s 20%+ surge. In fact, there are couple of points to note in terms of how the stock got here. Since the second week of this month, we have enjoyed positive divergence in the RSI window, even as the stock continued to make new lows below 10p. Indeed, the shares made yet another new low yesterday before closing flat on the day – a Dragonfly Doji. While in isolation, such a daily candlestick may not always cut the mustard, when I saw that Zanaga was yesterday’s most traded AIM stock it was clear that there was going to be an explosion to the upside. Ironically, after the volume of 37m shares yesterday, I would suggest that the stock could / should have risen more than it actually has.
Nevertheless, with an implied target of as high as 18p – former April resistance – it can be said that perhaps one should not quibble too much about going long at 11p or even 12p.
Finally, I received a Tweet last night from a friendly follower who said that he had cut his long exposure to the stock market, and was wondering when it might be safe to get back into the market. The usual advice I would give in such circumstances would be to focus less on the market as a whole, and more on specific situations such as the Zanaga example above. Nevertheless, without wishing to fudge the issue, my “golden rule” is to wait on at least an end of day close back above the 10 day moving average on the FTSE 100. This ran at 6,714 on the close Friday, with a failure just above this level for Friday morning. The bear view is appropriate I feel, given the way that the floor of the rising February price channel I have drawn on the daily chart runs at 6,471 – level with the 50 day moving average. So a “worst case scenario” of 200 points more of downside.
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