Can Rockhopper Exploration extend latest rally?

It's often choppy in the seas around the Falkland Islands, and things have been no different for this exploration company. But with the shares having perked up recently, independent analyst Alistair Strang looks at potential for further upside. 

When we previously reviewed Rockhopper Exploration (LSE:RKH) back at the start of 2019, we’d warned of some pretty nasty consequences if our reversal trigger was troubled. In true lethargic style, it took until August until everything went wrong, the price celebrating the end of the year by hitting our 15p drop target. A miracle bounce brought the start of 2020, then Covid hit the markets and sanity left the building.

We’re not entirely convinced sanity is returning but “something” is certainly going on with Rockhopper, the price showing a series of interesting movements this month. Better still, it has managed to actually close a session above the immediate downtrend (see chart insert).

Presently trading around 8.2p, the share need only exceed Monday 13th's 9p high to hopefully garnish sufficient strength to reach an initial 10.6p. Our secondary, if such a level is exceeded, works out at 12.7p, but visually there’s some pretty strong reasons to anticipate some hesitation around the 10.6p level.

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If we glance at the chart, the last two years has seen Rockhopper develop an unhealthy fascination just above the 10p mark, resulting in a possibility the glass ceiling shall again intrude.

Of course, this could be due to a plethora of private investors selling at break-even, folk who previously jumped in at the 10p level, only to find their funds taking a protracted holiday in the Falkland Basin.

Source: Trends and Targets. Past performance is not a guide to future performance

We’re equally curious whether the share price shall exhibit something vanishingly rare recently, exuberant behaviour following a GaGa movement. The two circled areas of the chart highlight Gap Down/Gap Up behaviour.

It used to be the case spotting a GaGa provided an almost cast iron case for solid movement of considerable strength. In the case of Rockhopper, if we extrapolate the implied strength from this pattern of price shuffles, the implication is a suggestion of coming recovery to an improbable looking 16.5p. We’re more than a little sceptical at this, quite literal, share price doubling calculation.

However, there is yet a further aspect to Rockhopper's price movements we’ve avoided. Two years ago, when we gave a reversal target level of 15p, we warned that should this level break we could only calculate an ultimate bottom of 0.6p.

Thankfully, the share hasn’t come close to this level, its relentless drop eventually deciding to bottom at 4p. At this point in time, while there’s not been any spectacular recovery, the fact our “ultimate bottom” remained untroubled tends imply some residual strength for the share price. That particular calculation is thankfully no longer valid, due to the share managing to close a session above the Blue downtrend.

At this point, we generally would finish with a festive worst case scenario, an early warning if everything intended to go horribly wrong. About the only sensible comment we dare make would be to warn of consequences if the price managed to close a session below just 7p. Such movement would utterly foul all our calculations!

Finally, as is our habit, we scanned the news in an effort to discover the reason for Rockhopper's suddenly positive attitude to life. Google News revealed quite a few recent mentions, including a company called Navitas Petroleum joining them as a partner in the Falklands. In addition, their CFO is stepping down. Perhaps something solid is finally happening.