Zak Mir – Tactical Buy call on selected AIM oilies

It remains difficult not to continue to be mesmerised by the “up-and-coming” oil and gas explorers such as Bowleven (BLVN), Rockhopper Exploration (RKH) and Xcite Energy (XEL). Indeed, I have also been bitten by the bug in this respect given that the latter is one of my top 10 AIM picks for the second half of 2013 (see banner below to receive your free copy).

Over much of the past year, shares of Xcite have been pivoting either side of both the 100p level as well as the key 200 day moving average – currently at 102p. Indeed, we have seen regularly swings within a roughly 80p to 120p range and on each of these occasions when the range has been probed both bulls and bears get excited anticipating either the respective great break up or breakdown, only, in recent months, to be frustrated as it lapses back within the range again. Unfortunately, at the moment it is likely that there are few passions burning for either bull or bear given that the shares remain steadfastly pinned to 100p level and have been flat for days.  

Crude Oil of course has been soaring since the start of July, moving decisively on the WTI measure, back above the$100 in the wake of Egyptian unrest. And so, it seems curious that the stock price of XEL and others has been resolutely moribund as its base product rises in price. In XEL’s case, given the propensity for the stock to deliver both bull and bear traps on a regular basis, the best way forward here may be to wait on an end of day close back above the September resistance line drawn in black and centred at £1.10, before taking the plunge on the long side. Such a move will, in my opinion, then target the top of a one-year price channel at £1.35 and site of the 2012 resistance line projection. My money’s on a decisive break to the upside in the coming weeks.

One of the more irritating aspects of the popularity of speculative stocks such as Rockhopper Exploration, is that despite its relatively small size, big brokers such as Goldman Sachs seem also to want to take a ride on the trending / bulletin board aspect here. I personally regard this as a rather cheap form of trying to garner publicity. Rather gratifyingly (but not for holders of RKH), the shares continued to slide even after the recent buy rating on the Rockhopper, indeed by some 10%, although this is nothing like the collapse seen in Avocet Mining (AVM) from the Goldman recommendation level above 20p – something our former editor should have paid heed of when advocating also a long play on AVM as he is a great believer in doing precisely the opposite of the Vampire Squid as regular readers will know!

The current position with regards to Rockhopper on a technical basis, is that it would appear that we have now postponed a meeting with the floor of a one-year price channel at 95p. The implication to me from the chart is that while the June floor at £1.20 is held, there is the chance of a retest of post-May resistance at £1.40 and beyond over the next few weeks. However, one would really want to see a weekly close above this level and also former February support, before the bulls have any real justification for cracking open the champagne on the assumption that the worst is over here. Once more though, my bias is definitely to an immediate resumption to the upside.

Finally, I have to confess that I have a particularly soft spot for Bowleven given that the shares rallied from around 65p to over 100p earlier this year, precisely as I called for in my 2013 Outlook (see Trading Guides page tab to the top of here for your free copy and also my call for gold down to $1200 in early Jan!). Indeed, it was a textbook technical move. However, in the recent past they have not been so predictable, serving up a bear trap reversal this month from below former December/January support at 63p.

The end of day close yesterday at 66p implies that aggressive traders might want to consider going long now and remaining so whilst there is no end of day close back below the old turn of the year floor. Nevertheless, there is an outside chance that the broken 2012 uptrend line at 69p site of the 50 day moving average, could block the latest recovery attempt but I am not expecting this. Therefore, it may be that cautious traders may wish to wait for 70p plus to be seen on a sustained basis for taking a view on the long side once again.

ADDITIONAL PUBLICATION DISCLOSURE – TITAN INV PARTNERS IS LONG BOWLEVEN & ROCKHOPPER AND INTENDS TO TAKE A LONG POSITION IN XEL POST THE PUBLICATION OF THIS BLOG