Chart of the week: A promising trade with a low risk entry point
24th September 2018 10:45
This small-cap oil play has demonstrated a 'beautiful' trading range, and one of the very best set-ups, according to technical analyst John Burford.
A few years ago, I had a fleeting interest in this young gas and oil exploration company as it started operations in the South Atlantic around the Falkland Islands, which must be one of the more brutal environments for this activity on the globe. Rockhopper comes from the penguins that inhabit the islands who hop from rock to slippery rock with great skill.
Normally, I do not cover many AIM penny shares, but I believe the market is stable enough to make some forecasts. And the chart does look compelling.
Here is the daily:
Source: interactive investor Past performance is not a guide to future performance
This sector is notoriously volatile for small companies as even a small find can send shares rocketing – and vice versa, of course. But what struck my eye is the beautiful trading range between a high of 45p and a recent low of 33.5p which has been in effect since May. This looks very much like a consolidation before another test of the old highs – and possible successful breach.
The three down corrective nature suggests an immediate move up off the Fibonacci 50% support. And if it can punch above the 45p high, we should have what I call a five wave continuation pattern. This is a pattern I have identified and is usually set around half way along a major run.
If so, I can set a target in the 60p area with higher potential thereafter.
With the shares trading close to major support at 36p, a trade here could be protected by a close stop placed just under support. These are the very best set-ups I favour - a promising trade with a low risk entry. If wrong, I lose little. And if correct, I have a very high reward/risk position. You cannot ask for much more than that.
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
Details of all recommendations issued by ii during the previous 12-month period can be found here.
ii adheres to a strict code of conduct. Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.
In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.
Editor's Picks