Having had the perspective of the stock market on a daily basis for over 35 years, the ebb and flow of bull and bear markets become something which if not obvious, is something which one learns to live with.
In particular, signs of a top or bottom, become that much more noticeable. This has two advantages, firstly that there is perhaps not the panic at the lows and elation at the top that those newer to the market may suffer from. It does hopefully mean that what is the Holy Grail of the stock market, timing, is nearer for the experienced investor, rather than the novice. This is over and above the way that if there is any purpose to technical analysis, its use is in delivering the optimum exit points. But combining that “emotional” experience with charts can help, over and above some of the telltale signs that stocks are about to turn one way or the other.
FTSE 100: 7,000
This year has provided some decent pointers, many of them quite logical, for those looking to get the market right. The backdrop has been governed by 7,000 on the FTSE 100. This was the peak in 1999, at the time of the Dotcom Bubble, over 20 years ago. The implication is that anyone buying shares when the FTSE 100 is at 7,000 is hardly buying the market at an expensive level, and if the UK blue chip index falls below this, it is unlikely to stay below it for an extended period. Even with the pandemic and Ukraine, so far this has proved to be true. This summer the market bounced at 7,000 on several occasions. The cost of living crisis/inflation, could change this, but it would be surprising if leading shares remained below where they were 20 years ago. It may also be the case that inflation boosts corporate pricing power and actually this is what drives them higher to 8,000. This is a punchy call. But to add another rule derived from experience, the most likely direction of travel for shares is actually where most people do not believe it will go.
Small Cap Liquidity Crunch
For the small caps the landscape this year has been brutal, governed by a liquidity crunch as investors hoarded cash in the wake of the Ukraine uncertainty, and as much as anything else, a desire to ensure they had the money to pay their bills. This culminated in a June / July sell-off in small caps, one of the worst in recent years. However, it may be the case that the aftermath of this will be seen as the low for small caps, and consequently an opportunity. This is on the basis that everyone who wanted to sell shares going into the summer did. A basic point of the mechanics of the market is that if there are no sellers left, there is only one way a stock can go.
A more esoteric rule as far as the small-cap area of the market is to use some of the most stuck-in-the-mud shares as indicators of the health of the space. This week saw significant gains in some of the stocks which have been on the back foot for an extended period, and also those that have been underappreciated. You could also add that off the back of this, all those who were ready to capitulate have already done so. For instance, renewable energy play Kibo (KIBO) is up from its 0.08p early July low to 0.18p this week. The turnaround came from a partial loan settlement, as well as stakebuilding this month.
Power Metal Resources
After what has seemed like thousands of RNS’s in recent years, Power Metal Resources (POW), said it was putting out a significant RNS, and it actually has. The announcement that did it, and has meant that the shares have now doubled from its early July floor. The company said, “today’s exploration news is, in my view, potentially one of the more significant the company has released in its 3-year history as Power Metal. We have confirmed that drillhole K1-6 at Molopo Farms, drilled during the 2020/2021 programme, intersected the edge of a very large-scale and strong magnetic conductor.”
A company with what some could say there was a personal angle, was mobile content provider Mobile Streams (MOS). Here the shares jumped 30% on the week. This was off the back of signing a three-year contract to be the exclusive global producer and provider of non-fungible tokens for the Mexican National football team. There was of course, an interview to be had, governed by CEO Mark Epstein still being in Mexico. In the end the only time that worked was 12pm Mexico time, which is 6am in London. While I know Mr Epstein is a very hard working CEO, not many would be available at midnight.
You do not have to have been in the market for decades to note the fundamental buy signal delivered by property services provider Kinovo (KINO). Having traded sub 10p in early June, they ended the week with a 43% one day rise on news of a swing to profit. It has to be said that any company with such an inflection point in the current economic environment certainly stands out. It also rather makes one question the validity of seeking blue sky investments, when faced with a simple positive turnaround story.
As far as a couple of situations to watch out for over the next week are concerned, it may be that infectious diseases play Poolbeg (POLB) makes the grade. Traders noted a rebound for the stock off its cash position price near 4p, something which may be a wake up call to the market given that the infectious diseases space remains front and centre fundamentally in the wake of the pandemic.
An interesting situation where there is apparently never a dull moment comes from podcaster Audioboom (BOOM). Early last week the stock was near its 650p zone lows, with the bears apparently doubling down on the company in quite a sinister way, as if the decline from 2,200p was not already in the mix. It may be the case that even without the perennial M&A speculation, the shares are due a lasting rebound, if only on the basis of that this is a situation that those who were chasing such rumours capitulated some time ago.
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The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.
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