Zak Mir – XEL, Milk snatching & The Heckler!

Well, it has finally happened. After more than a decade of trying to be a good person and not slapping sell recommendations on bulletin board hero stocks, I have now officially been heckled via Twitter for posting bearish calls on Xcite Energy (XEL) and that AIM doyen – Gulf Keystone (GKP).

Why did I turn bearish? Well it is very simple – firstly, I have no position in the stock and so am not emotionally attached to them – this is always a good standpoint to be in when analysing a stock and I suppose is the real worth of people like me to readers.

Secondly, the charts have very simply broken down. If you ignore that, I may be rather more popular with the holders of these stocks but probably a pretty poor chartist! When the charting picture changes I change – a bit like Keynes and his facts!! This is unlike the traditional fundamentally research based broker who generally reasons that if Northern Rock is a buy at 500p then it is an better buy at 400p (editor interject – and of course a sell at 10p – you can always count on these numpties to tell you to buy on a blue sky and sell on a grey day – wealth decimation is their forte!).

Technical analysts are obliged to change direction when support or resistance is broken. To us, it is just as rational as following a Satnav. There are few people who ignore a TomTom telling them to turn left just because a few minutes ago it told them to turn right. Unless of course you see a cliff ahead!!

 That said, I am flattered that someone has enough spare time in their day to dig out my old research and then tweet it out (oh to be retired eh?!). This also ties in with my view that you are no one until you have critics, stalkers, hecklers and bad press – look at Thatcher – her road to greatness began with being a “Milk Snatcher” no less.  It would appear that the first steps on my path to immortality have now been taken!

However, there is a serious point to note, and I doubt I will be able to write a more significant point in a blog than this. It concerns the nature of recommendations, what purpose they have and what they actually mean. For instance, it can be see that at the beginning of March Xcite Energy broke its 110p March peak. Quite logically, the target for the share at that time became 140p – the former September resistance zone. My call at the time was that while above 105p – allowing some wiggle room, Xcite could hit 6 month resistance. Please note the word “could” and “while above”. This is the conditional tense, suggesting probability / possibility and not certainty, because certainty is almost unknown in the financial markets.

It can be seen that the best that Xcite eventually managed was 127p – not a bad gain from 110p. What happened next was that the 105p level was lost towards the end of March suggesting that we had in fact been suckered by a March bull trap above 110p, and that downside was now on the agenda.  For me, the break of both the July uptrend line and the 200 day moving average this week has been a strong sell signal. There has now been a triangle breakdown. This should take the stock towards the floor of a falling March 2012 price channel at 50p. Of course, if you sold the stock at 100p down to say 95p on the basis of the recommendation you would place your stop loss from 105p or perhaps up as high as 110p – the old January resistance.

But you may ask, what happens if next week Xcite Energy is back at 120p, does this mean that the recommendation had no use or should not have been made?  Charting follows a set of rules based on probability, and you go with the best percentage set ups and offer them in good faith. Not all of them will work, but selling Xcite Energy at 95p with a stop loss at 110p and a target of 50p represents to me an attractive risk / reward ratio. It is a risk / reward ratio where I can be wrong 2 out of 3 times and still make money.  This is clearly something that my Twitter follower does not understand, perhaps it is better that way as has been an inspiration today. I would suggest he reads my Technical Analysis Myths exploded book per below!!