Interactive Investor

Chart of the week: A promising trade with a low risk entry point

24th September 2018 10:45

John Burford from interactive investor

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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.

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