Zak Mir on “Manipulated Magnolia”, Gulf Keystone Petroleum & Petrel Resources

I have been asked by a reader on my opinion on the price action of Magnolia Petroleum (MAGP), rather intriguingly, with the added comment that they believe the stock is a “manipulated market”.

While such an accusation may or may not be true, it can be said that anyone waiting for a return to the glory days of 2012, might have a long wait… The evidence comes from the slow slide from one-year resistance above 5p, with several “false dawn rebounds” and “bull trap reversals” all the way down.

In fact, the best hope for the bulls came at the beginning of the year, with a rebound off the 200-day moving average – then just below 3p in January. However, since then, it has become clear that the 200-day line is now the main resistance here – with spring spikes through this feature towards 3.5p.

The position now is that we have seen persistent failure at, and just above, the 50-day moving average of 2.42p, as well as the initial 2013 support shown by the red line. The view now is that it would be surprising, if there was any lasting bounce for the stock until the test initial 2012 resistance at 2p.

Indeed, the situation here appears to be so soggy that even a test of April 2012 support of 1p does not feel too pessimistic a call. If pushed, the earliest cautious traders might wish to go long of this stock again would be back above initial 2013 support on a weekly close basis.

Something I, and no doubt many other technicians are scared of delivering is a “neck on the line call” on a stock or market (our former Editor Richard Jennings could never be accused however of being afraid of putting his neck on the block!)..

However, my view is that the whole point of the exercise as far as technical analysis is concerned, is indeed to come up with an argument which is robust enough to provide traders and investors with the information they need to come to the correct decision. If this is not available at key times, it might as well not be given at all.

Presumably, given the way that the Excalibur verdict for Gulf Keystone Petroleum (GKP) is imminent, this is not a significant time for many analysts to be projecting the share price of this beloved punters favourite in any direction. The best I have heard to date is that retail investors are still falling over themselves to go “Long” of these shares, and that even a negative verdict would be a buying opportunity. Hmmm…

From a charting perspective, the view here is indeed positive. And has been so essentially since the former December support at 161p was recovered from early last month onwards on a sustained basis.

The focus currently is on both the June uptrend line in the RSI window, as well as the way that August 16th witnessed a rebound off the 200-day moving average at 175p – testing it as new support and offering a fresh “Buy” signal.

The likelihood in the wake of this price action, is that not only are the shares now in a “bull flag breakout” above former July 180p zone resistance, but also set to progress within a rising trend channel from June. The conclusion is therefore that barring an Excalibur loss taking 30-50% off the share price overnight, we have Gulf Keystone clearly poised to progress towards the 2-month price channel top as high as 215p by the beginning of October.

Although Petrel Resources (PET) is clearly no Gulf Keystone, at least in terms of market capitalisation, it is clear from the daily chart configuration in recent months that there has been plenty of speculative activity here too.

This presumably centres on when or if there will be a second leg to the upside to complete the promise of the mega November spike. What helps build confidence here, is the way that it is possible to draw a rising trend channel here on the chart from November, with the floor of the channel currently level with the 50-day moving average now at 16p.

Backing this recovery is the way that we are in the aftermath of a “deep bear trap” from July, which took the stock as low as 11.25p. The expectation now though, is that in the absence of an end of day close back below double 16p level support, we are overdue a fresh attempt at clearing initial 23p 2013 resistance over the next month.