Zak’s weekend thoughts – “Aim”-ing for success

4 mins. to read

I have to admit that until very recently, I was rather heavily biased against AIM stocks, a prejudice I have held for many years. But this changed when I realised via the power of Twitter and the people that I follow and recent blogging activities where you can see just how many views your articles have had and so what people actually want to read. For instance, write about Burberry (BRBY) and you might get 50 views a day on any half decent financial website. Write about a hot shot or topical stock like ARM Holdings (ARM) or BG Group (BG.) when it has just plummeted and that might get you 100 views in a day. However, write about Sound Oil (SOU) at the right time and the number of views you receive could be well in excess of 700. So much for retail investors in the UK buying quality stocks eh?!

Therefore, the answer is quite clear (in terms of the ratios of the views), that while the general interest may be towards the blue chips in terms of pension funds and stocks that people hold for a long term view, on a day-to-day basis it is increasingly the minnows, with a potential for multi-bagging, where the hot money is. Snag is they very rarely deliver this, only enriching the typically crooked directors.

On this basis, I thought it might be worth running through some recent favourites in the AIM stock area. In fact, starting off with Leni Oil & Gas (LGO) a stock which reminds me of how one of my prejudices against this part of the market have been proved incorrect. This is because although FTSE 100 stocks have more trading volume, there is so much noise (broker upgrades / downgrades / the Wall Street open / economic data) that in fact, I think that technical analysis is very often more difficult with the big names than the small – contrary to conventional wisdom.

The other point is that while the big brains of the City are focused on trying to work out where BT (BT.) or BP (BP.) are going, there is not quite so much of a battle/Civil War in terms of calling the smaller companies – a situation that gives old hands like myself something of an edge!  Of course, the main “hook” for most AIM punters is the hope that you could buy an AIM stock for a penny and it could reach a pound!  It is not quite so easy for BP to achieve the same trick.

For Leni  there were a couple of potential entry points. The first was a break of the initial October resistance at the 0.43p – say an entry of 0.5p, and the second was an end of day close back above the former June intraday low at 0.6p, after which the target became the July intraday peak at 1p. As can be seen from the chart, despite the magnitude of the recovery, the shares have actually behaved very well – a vertical take-off. Of course, we all want to now know what may happen next, and perhaps the best thing the to say at this point is that while there is no end of day close back below the black 200 day moving average now at 0.89p, we could see a return to 2012 resistance above 1.8p before the end of the year.

As far as Magnolia Petroleum (MAGP) is concerned, in the near-term, the best opportunity presented here was the early October Bull flag either side of the 4p level. This was so bullish because new support was coming in nearly a penny above previous May resistance under 3p. The view now is that while there is no break back below the initial October 4.25p resistance we should see Magnolia stretch out to the top of last December’s rising trend channel at 6p. Once again the timeframe is well before the end of the year.

Resistance for Aurelian Oil & Gas (AUL) came in at 9.3p at the end of September and the shares were struggling for quite some time below this zone. However, they were backed up by a rising August trendline in the RSI window,  something which did suggest that the end of the consolidation would eventually lead to the upside. Therefore, it can be said that an end of day close above 9.5p would be enough of upside trigger to take the shares in the direction of the August price channel top  – positioned at the 14p-level and site of the 200 day moving average. The situation now is that one would expect support to come in at, or just above, the 10p mark – an area that equates with the old August resistance zone. While there is no end of day close back below 10p the upside here should be another couple of pence as soon as the end of this month.

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