Zak’s midweek missive – fundamentals battle technical’s in CEY & OCDO…
Today’s blog is a little different to my usual ones. I want to look at a couple of stocks that have recently been very controversial shall we say, and perhaps most of all, quite challenging as far as near term trading is concerned. We take a look today at Ocado and the bulletin board favourite – Centamin Egypt – a stock that is fair to say that in unison with HMV (say no more!) has caught me on the hop in recent weeks.
Taking a look at the technical position in Ocado (OCDO), it can be seen from the RSI support line drawn through from July to the start of September that there was a bullish divergence signal encouraging one to go long in the low 60p’s and which then took the shares up to 77p soon after. Fast forward to November and we can see that there was a bear trap buy signal (again with bullish RSI divergence) on an end of day close back above the former September low at 58p. You could have gone again gone long here at 58p as well as any time between the 9th and 15th of November, just before the gap to the upside on the 19th. So, win number 2. In fact, even if you had bought after the gap nominally at 75p, using the 50 day moving average – then at 65p as a trailing stop loss, you could still be long now. Win number 3.
The problem here however, does not seem to be the technical indicators, it was the fundamentals. It is not easy to ignore the fact that Ocado has, to put it bluntly, found great difficulty in turning a profit over the past 10 years, and rumours were rife in the autumn that this company was set to breach its banking covenants. It is understandable then that you really would not feel like being long, even after the debt deal / placing in recent weeks – at least on a fundamental basis. But, as I have shown, on a technical view it was relatively straightforward. How say’s fundamentals take precedence of technicals – Tom Winni? Pah! Take a look at Ocada to debunk that theory…
To conclude with Ocado, while the shares continue to trade above the floor of this week’s gap higher, the upside here should be towards the October price channel top at 110p over the next couple of weeks in my opinion.
And so, whilst wiping egg off my face, moving onto Centamin Egypt – a stock which has been no less “exciting,” operating against the backdrop of an “Arab Spring” and which appears to be turning into an extended autumn! The main problem here on a fundamental view is how in area without political stability that legal / fiscal goalposts can be changed at a moment’s notice. Oh sorry, got side tracked on the UK there…
Getting back to Centamin and Egypt and it would appear that fears over a total cessation of production due to the halting o fuel deliveries were overdone and, while relations with the authorities are not exactly a love in, they appear contained – at the moment….
All this of course explains the sharp turnaround in the stock price from the October / November probes down through the 20p mark. Running through the technical’s and I would say that there was a decent bear trap buy signal from below the former July 28p intraday low, giving you a long entry on November 1st at 33p. This was ended by a failure at the 200 day moving average at 39p on November 5th – but a win nevertheless it still was. The big buy signal here was in the wake of the December 14th end of day close at 34p – above the former 32p November gap top. You could still be long from that day, and be targeting the top of a December rising trend channel at 80p while the floor of the January gap at 44p supports the share price.
The $64,000 question is what way to move on these stocks, being as it were, fully informed of both the technical and the fundamentals. The answer here is absolutely nothing, I do not trust either company as far as I could throw them (or Evil Knievil!!).
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