After skipping last weeks review, week 40 and 41 team well as a ‘before’ the DOW wobble and ‘after’ the DOW wobble. I’ve said for a while now that ‘this’ market, ‘todays’ market, is not like that seen before. Volatility generates the big bucks and after a few weeks of the DOW creeping higher to punch out new all time highs, the algo bots decided it was time for a little shake up. And why not? The drop in January 2018 from 26500 to 23000 provided another significant profit opportunity or rinse and repeat. This time it looks like a drop from 26700’s to 25000’s might be sufficient especially with Mid term US elections around the corner. Afterall, what’s the rush, there are plenty of ‘rinse and repeats’ lined up in the months ahead. Since QE and 2009, the market has acted as a washing machine for FED Reserve, UK and EU printed cash to work its way back into the banks pockets. After a decade or so, the coffers should be getting near ‘comfortable’ levels and one assumes that once this has been done, the ‘throw them to the wolves’ mentality will be reintroduced. Like a F1 pace car, the FED Reserve and EU have been doing circuit after circuit, burning cash along the way but keeping the pack in track. When the pace car is removed, it will be interesting to see how the markets and banks cope. As most of you know, by design, the market will eat itself in an attempt to survive. Perhaps this time around, the global powers involved will make sure that this mentality is reduced. A starting point would be to get ‘shorting’ rules tightened up. The argument of liquidity and hedging is utter rubbish. Bit like the argument over huge salaries for bankers required simply to secure top talent. Not true. That’s made up by the market. There are plenty of very smart young banking execs out there which would happily work on salaries alone without bonuses. Putting that aside, back to shorting rules… here’s an idea… why not treat the UK AIM market as a haven for investment rather than a type of Ladbrokes (other bookies are available) environment. Yes, higher risk remains in these stocks but they need investment to deliver and if you don’t invest in the future, where’s the new innovation going to come from? So why not remove ‘shorting’ from AIM listed stocks. Let them trade based on merit or failure without the contrived shorting that often occurs ahead of placings or CB raises. Some will say, what about arbitrage? Come on… most of these high risk stocks are high risk for a reason. An investor knows the dangers involved. If the investor wants to manage the risk then do so using other tools in the market… not shorting the stock. Many will remember Xcite Energy. Over 300mmboe in reserves and yet approx £90m of debt could not be refinanced due to the fact that the very bondholders/debt holders involved had shorted the equity to almost zero. Is that the best way to boost UK Oil & Gas reserves? If more ‘helpful’ investment approaches were deployed, then perhaps the need to FRACK in the UK would be zero. The UK is not the wild west. It’s not like the US shale fields. It’s a country that is seeing its prized countryside turned into mini housing estates, farm land being sold off and food supplies dwindling. Now with oil prices rising, the UK looks set to be fracked again. It’s wrong and unnecessary. Instead, focus on boosting AIM listed Oil&Gas stocks. Ban shorting and strengthen governance. Strengthen communications. Remove licences and re-award them if left languishing. Generate jobs, skills and reduce reliance on imports. Not hard is it? With Brexit around the corner, it’s about time Blighty started acting like good old Blighty. Roll up the sleeves and get this country’s energy supplies supported with UK based firms. Avoid the Fracking.
Week 40&41 review:
As seen by the folio updates below, the DOW’s wobble was felt widespread. Quite unusual considering PoO and PoG both remained very solid. The latter has since put on 4%. To be fair, it looked oversold in the first place so hard to tell whether the move to safety can be confirmed. But the bounce is welcome and should markets take a breather in 2019 (as many expect) then PoG should continue to recover back to $1350oz or with a little wind in the sails, go on to test $1450oz.
Amerisur Resources (AMER) one of the ShareHub’s picks for 2018 confirmed an oil discovery from its Pintadillo-1 well. The well flowed 590bopd with decent 30.4api oil. The share price fell 25%. Odd isn’t it? This trend has been in place for some time now. The stock seems eternally weighted to the downside despite positive updates. The company is in a much better position today than it was in 2016 and yet the share price has fallen from 34p to 11p levels today. As PoO rises, AMER falls. It’s almost as if the algo bots have used AMER as a hedge to PoO. Buy crude and sell AMER. Buy Amer and sell crude. Daft as that may sound, the markets are far from functional or logical. Take another ShareHub 2018 pick like SOLG. Another stock in the doldrums. Added to the 2018 folio at 30p a share and within 8 months the stock was testing 20p. During this period the company issued mining/exploration updates that revealed the main assets resources were increasing. It was all good stuff. Then as if someone had swicthed off a black algo box by accident, the stock bounced off 20p and steadied itself at 24p. A few weeks later, BHP bought 6% equity in the stock for 26p. And a month or so after that BHP buys another huge stake for 45p a share. The stock doubles off lows to trade at 41p today. Boring boring drip drip boring for 8 months and then boom! Seen that pattern elsewhere? Get a feeling that something just doesn’t add up or make sense? Well, the chances are the stock is being manipulated. To suit a buyer? To suit a new equity raise? To suit an MBO? Speculation aside, it has not all gone swimmingly for AMER. The stock has underdelivered in terms of the promised exploration programme, but this is set to change with the second exploration well on the heralded CPO-5 licence. Indico-1 well is expected to spud within the next couple of weeks. That alone should be worthy of a 25% rise in the share price nevermind pricing back in the newly discovered 590bopd production. Watch out for news soon as something feels like it is brewing on AMER.
Further good news across the ShareHub picks have helped support gains for the year. Serica Energy confirmed that US sanctions on Iranian owned assets will not effect the business as many had feared. It could have been worse so Serica can count themselves lucky. Elsewhere, important exploration results are expected from HUM along with a slighly lower production count for Q3 as rainy season in Mali has a habit of making conditions tricky to mine at optimum levels.
Roll on week 42, it will be interesting to see how the ShareHub picks bounce back against a recovering or more stable DOW.