Chart Navigator: Revolution, Bushveld Minerals, Seeing Machines and more

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7 mins. to read
Chart Navigator: Revolution, Bushveld Minerals, Seeing Machines and more

As equities continued to surge in June, contradicting the “sell in May and go away” stock-market adage, Michael Taylor explains why traders need to remain ‘fleet of foot’.

Don’t Fight the Fed

As traders we need to remain ready to change our minds. It is no use fighting a trend and going against it.

One of investor Peter Lynch’s sayings was “Don’t fight the Fed”. What he meant was that investors (and this also goes for traders too) should not fight the Federal Reserve because it prints money, and this money is then used to inflate the prices of assets.

We have seen this ever since the global financial crisis of 2008, with quantitative easing used to stimulate borrowing − injecting a ‘steroid’ into global growth.

An economy is simply a collection of transactions. When transactions are growing, an economy is expanding, as more and more people enter the world of commerce and do business together. This has an exponential effect as more and more money is being spent, which means more and more opportunity.

Unfortunately, when transactions decline, we see the opposite happen. Purse strings tighten and people stop spending. And when people stop spending, that means less income for others. And less income for others – in turn – means less spending for them, too.

So we can see that people need to spend, otherwise the economy starts stagnating. To get people to spend, businesses and individuals are offered cheap debt. That means they can borrow cheaply and spend. Or that is the idea.

The problem is that cheap debt is now an addiction. At some point, somebody will need to pay for it all. I just hope it’s not me.

Revolution Bars Group

Last month, we looked at Revolution Bars Group. I derisked some of this position at 100% up, as highlighted on my Twitter account, and was stopped out on the news of the placing.

I then reloaded my position and more into the placing but sadly suffered from significant scaleback. This is often one of the problems of a popular placing, as the deal can be significantly oversubscribed (ie there is more demand than actual supply).

The company then has two options: increase the size of the placing to cater for the demand, or scale back existing places. The first option means more cash in the coffers, but this limits secondary demand in the market. The advantage of secondary demand is that the price can be supported and the stock moves up as demand outstrips supply. When this occurs, under the basic principles of economics, prices must rise.

If we look at the chart of Revolution Bars Group, we can see that as a result of the company scaling investors back, the price has been well-supported.

With pubs opening up on 4 July, it is my expectation that Revolution’s open units will hit full capacity. This is clearly not going to bring in the same amount of revenue as before, but things are improving. With the company now well-funded, I see this as a trade where I may take a large ‘haircut’ or end up with a multibagger.

Eagle Eye

We also previously looked at Eagle Eye, and my suggestion that trading may not have been as bad as the market has priced in turned out to the correct.

The company announced that it was trading ahead of expectations, and the stock rallied from just under 160p to 190p in a few sessions.

It’s now hovering above the 200 exponential moving average. If the stock can hold here, then the short-term outlook for the stock price would be bullish.

With supermarkets remaining busy and many watching the pennies, it doesn’t seem unreasonable to assume that Eagle Eye’s AIR platform has been seeing a lot of business.

Greggs

My short-term trade in Greggs was unfortunately less fruitful. As I wrote last month, I bought the breakout of 1,900p, only to be stopped out relatively quickly.

This is why as traders we need to cut our losses. The price came all the way back down to 1,600p and tested this support, and has yet to reach 1,900p. That’s a sharp drawdown in a SETS-traded stock, and a lot of opportunity cost.

We are money managers in this business, and we need to deploy our capital where it can be most effective. Holding onto trades where our thesis has been proven wrong is not effective management of money.

Bushveld Minerals

Bushveld has been one of the success stories of AIM. During 2018, the stock had a ‘monster’ run, from under 10p to hitting 50p.

For those who were long in 2017, this move was almost a 50-bagger!

It goes to show that patience on some stocks can play out positively.

If we look towards November 2019, we can see the stock climb from the breakout area of around 32p and hit 50p. We can see now that this was a blowoff top, and the stock tested the zone again a month later but failed to reach and break the high. Since then, the stock has slid into a downtrend.

However, things may appear to be changing. We can now see a rising channel, and the stock has formed a resistance zone just under 16p. We can also see the 100 EMA (exponential moving average) has proven to be resistance, and should the stock break through this line in green, then I would like to take a position.

The 200 moving average in grey has also proven to be resistance, and so the stock does not have much of a runway before it would hit this – currently around 18p.

A break of the 200 MA (moving average) would be very bullish, as the stock has not consistently traded over this level since April 2019.

Seeing Machines

Seeing Machines is a company that – like many AIM companies – has promised a lot and delivered very little over the years.

The company owns technology that allows it to monitor drivers’ faces and provide an alert should they become drowsy or distracted. It has been proven to reduce accidents by over 80% and is therefore clearly a useful tool in combating traffic collisions.

Naturally, there has been resistance, with some truckers arguing that the ‘Nanny state’ just wants to watch everyone – but the facts speak for themselves. Unless you believe that self-driving cars are around the corner, Seeing Machines’ product is potentially a game-changer.

We can see that there has been plenty of volume in recent months − a sign that there is interest in the stock at lower levels. It’s a similar pattern to Bushveld Minerals – resistance and a series of higher lows.

We can also see that the stock broke out, hit the 200 MA and has since traded downwards. It’s clear that the 200 MA will prove resistance in future at a price of just 3.8p currently.

The month ahead

A month is a long time in the stock market. Coronavirus has been the main theme of 2020 so far, and despite all of the protesting, the virus hasn’t taken a holiday. Cases are again starting to rise, as was perhaps inevitable with the easing.

In my opinion, we will not see the absolute lows of March, when the world was in disbelief as equities slid faster than they ever have done in history. This is because prices were distressed and exacerbated by short sellers such as myself.

Global governments have stepped in and shown that they are willing to borrow from the future to prevent a crisis today. Massive injections of capital and ‘free money’ in the form of furlough have been thrown in to stop businesses and individuals going under.

That doesn’t mean we’re completely out of the woods though. When pubs open on 4 July, it is unlikely that social distancing will be adhered to at all times due to the inebriation of pub punters. And despite that, I’m unable to go to a gym, which could easily enforce a limit on how many are allowed into the facility and ensure strict cleaning protocols are in place.

It seems crazy to me, and many self-employed people will no doubt be feeling the same, as they watch their livelihoods slowly disintegrate.

The economic fallout once furlough ends has the potential to be devastating. It’s all rosy now, but will it be this time next month?

As always, monitor your positions and manage your risk.

To read Michael’s free book How To Make Six Figures In Stocks go to his website: www.shiftingshares.com

Twitter: @shiftingshares

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On 30th July at 1pm we’ll be holding the next live Q&A webinar with the Master Investor himself, Jim Mellon. Please share a question for Jim below and we’ll try to answer as many as possible in the live webinar. Sign up for the webinar here.

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