Chart of the week: this small-cap share could multiply in value

17th January 2022 11:30

All the elements are in place for this share to stage a strong advance in what should be a very powerful short squeeze, believes this technical analyst.

Petrofac remains on my Buy Low/Sell High list

On 27 September I covered this oil services company for COTW when the shares were trading around the 137p area. My analysis told me Petrofac (LSE:PFC) was a prime candidate for my Buy Low/Sell High list. The shares had fallen by a stunning 95% off its 2012 all-time high at £17.80 and I laid out my case that if oil could maintain its strong upward bias, the shares should recover to at least the £7 region.

That was when Brent crude oil was trading at $78 and the oil major BP (LSE:BP.) was trading at £3.20. Since then, crude oil dipped hard to the $67 low and has zoomed up to the current $86 region and BP has climbed to new post-Covid highs at £3.90.

In that time, what has Petrofac been doing? In fact, it has barely moved and is trading at 148p today – barely shifting from the September print while the markets for crude (and for the oil majors) have moved up considerably.

Here is my updated chart that is barely changed from that I posted in September:

Past performance is not a guide to future performance.

The large downtrend line remains but this time, the market is breaking up away from it and, with the strong momentum divergence I pointed out last time, all the elements are in place for the market to stage that strong advance in what should be a very powerful short squeeze. My first target area is £7 and then possibly £8.

There is great irony in the surging energy markets that many investors are shunning for idealogical reasons. This is what I wrote in September: “And crude oil is following a similar path. So, with rising demand along with rising prices, will there be a move to exploit these high prices by oil and gas companies increasing their exploration and development budgets? That would be the normal economic path and would be a no-brainer if many Western governments were not so committed to killing off the industry.”

For profit-seeking investors not so constrained by Western governments' self-destructive clamp down on fossil, the officially hated oil sector is actually outperforming the tech sector! The FTSE 100, which is dominated by oil and mining, is actually advancing while the tech-hevy Nasdaq is off 9% from its November high.

Of course, this is leading to booming input prices that are reflected in the Producer Price Index (and down the line to the Consumer Price Index) as we are seeing today.

Here is BP:

Past performance is not a guide to future performance.

The stand-out feature is the huge momentum divergence at the 2020 corona crash low, which is leading to the current surge. I have a major target at the £4.50-£5.00 area.

I remain bullish on fossil.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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