GKP - Five reasons to take some profit

Gulf Keystone Petroleum (LON:GKP) has had a very bad run recently, hardly surprising as they operate very close to the Syria/Turkey war zone. When the share hit the low sixties in October, many people, including myself though it had hit support and bought.

£GKP long-term support 63-65p

Unfortunately, the price dropped further, reaching a low of 42.5p. In the last four weeks, there has been a huge recovery and the price has doubled from that October 16th nadir, today hitting, but pulling back from 85.21p. Here is the daily chart with some annotations

GKP short-term overbought

I would now suggest that it is time to take some profit off the table, for the following reasons:

1. The 14 day RSI is now just over 70, so the instrument is overbought. The last time this condition obtained was the end of June 14, and you can see what happened there.

2. The August 28th gap was not quite filled on September 1st. This may seem like nit-picking for a few pence, but algorithmic trading is just that. The gap was filled today, and gap fills are normally followed a small reversal.

3. There is a lot of resistance coming up. You will notice the share today did not hit the 89.5p spike from August 22nd. If you look at the share price throughout the first half of 2010 in the first chart above, you can see it spent months in the range we are now.

4. This is really the fractal version of the first point (overbought). Note the two red boxes where the charts look similar. This means not only have we risen sharply, the pattern of how sharply we have risen is similar. In this case it is a tangent rather than a parabola. It is more likely than not that what happened after the box last time will happen again.

4a. A further point here is that the last fractal was immediately followed by a gap down. In this fractal we have a classic exhaustion gap up, and as you know, these gaps are the most likely to get filled. The price has to go back to 73p to fill it, which is not a big move given recent price/action.

5. Just above 90p is the 200 day simple moving average. This indicator is a well-known and understood area of resistance and it is likely that by the time we get to 90p, so will it.

So in the short term, I have closed (at 80p) three-quarters of my long from 60p, set the stop loss on the rest to 70p. All nice round numbers. Given the RSI, I expect the price to fall back to 73p, and then rise slowly to avoid being overbought.

This also fits nicely with the monthly chart which has a high degree of symmetry about it, the mirror line being the all-time high. Following this theory suggests a very slow climb back to 90p, taking six months or more, followed by a quicker climb of three months to 130p. That will take us to about August 2015. (Unfortunately, the next part of the symmetry suggest another crash).

I am a position trader in £GKP, not a fundamental investor. This means I take a long-term view, but I do so based on technical signals, not company news. I work on the basis that news drives price direction, but technicals drive price range. Keep looking at the symmetry of that chart. Surely news is not a mirror image.

My targets, first down to 73p where I will buy, then back up to 90p. Will sell rallies and buy dips to 130p, where I will finally exit. Note that I am not planning to short the gapfill!

Quindell RSI divergence gone

Quindell (£QPP) continues to fall. It is not crashing and burning, and the controversial Shareprophets theory appears to be stalled.

I posted a few weeks ago that bulls could take comfort from a clear RSI divergence pattern, but unfortunately, in the last few days, this has disappeared. The only hopeful signal for a bull is that this morning, the instrument briefly entered oversold territory.

This also co-incided with the bottom of the downward channel, but more importantly, with the last but one line of support from June 2013 of 137.69p. You can see that this was the last of a series of gentle reversals, and I do expect this one to be breached.

£QPP - negative divergence over

Indeed at 8.20am BST today, the share briefly touched 137.87p but quickly bounced back. This was the quick entry into oversold territory, plus support, and the bounceback was definitive as you can see from the 5m chart.

£QPP bounce - clearly algorithmic

You can see from the first chart that recovery in the downward channel suggests the share may now climb back to as high as 190p, before a further fall to 137.69p or lower. If it does go lower, there is clearly much more resistance, and the ultra-low of 81.15p was only for one day (10 May 2013), so my view is that it's not really going to go sub-100p. Still pessimistic from it's current price, but there you go. Going long to get that 45p to 190p should be regarded strictly as a day or swing trade, not a position. I would do a spread-bet and set a limit sell of 185p.

Note that a bounce back to 190p will not restore the negative divergence, and there is no technical reason at all for the share to go higher than that. Only something fundamental could do that.

In the long-term, I will repeat what I said before. These Shareprophets and Gotham City Research allegations need to be proved or disproved. If disproved, happy days, it's a £6 stock again, but at the moment the slow slide (reminiscent of £GKP's chart) suggests that institutional buyers have lost interest.

Don't forget £QPP is still the most shorted stock in the UK, as can be seen here on the very useful Datalend website. Check the recent price/action on the other highly shorted stocks on the list.

One thing is for sure, £QPP may still be a 'hold' but it definitely isn't a 'buy' at current prices. Anything is a hold if your timeframe is long enough.

One last thing, as I am sure you know, Quindell did a 1:15 reverse share split on 19th June (RNS here) and IG Markets correctly adjusted their chart to reflect this. However, Spreadex did not, and I have written to them today about this. They did adjust their chart for £RBS who did a 1:10 split in 2012, so I assume this was an oversight. But whilst on this topic, the mighty Google Finance have also not entered the split in their chart. I have written to them as well.

For those of you not familiar, when Quindell was split 1:15 on June 20th, every 15 of your Quindell shares were converted into one new share. Obviously the value of these shares therefore went up by a factor of 15. QPP shares closed at 16.65p on June 19th, at 242.68p on the next day. It is normal for charting services to show the prices prior to the split on the new basis, otherwise you would have a massive gap, which Spreadex and Google Finance do have!

Rare mistake by God!

PS Before you ask, yes I am short £TSCO, TP 158p