Trader’s Café with Zak Mir: A Week In Small Caps, Sunday 9th October 2022

It was perhaps not too surprising that as we are in the vulnerable month of October, have inflation, mortgage, energy, Ukraine and UK political woes to contend with, things were not looking too bright for the UK stock market.

Author @ZaksTradersCafe

However, as the weeks go by, barring a tactical nuke appearing, it could be the case that the worst of the hysteria will start to fade. This is even though the media versus the establishment battle remains in full flight. Perhaps it should be remembered that while the present Prime Minister was the result of the Conservative party members voting for her, the metropolitan elite is not elected by anyone.

IPOs and Multi-baggers

During the week I was fortunate enough to bump into a stockbroker who, with more than 30 years in the saddle, can be regarded as one of the leaders in his field. He is particularly wise in terms of the small-cap area and reminded me of what the turnaround from a bear market to a bull market looks like. It relies on two factors primarily: the IPO, and not surprisingly, the multi-bagger. In the case of IPOs, the bottom will be in when there is an IPO that is either so sought after – and therefore a win, or has been so underpriced due to market conditions, that it becomes a win. I suppose we would be looking at a repeat of Kistos (KIST), Ben’s Creek (BENS), Pensana (PRE), and Tirupati (TGR) during the pandemic.

Easy Wins

The second factor is possibly a little more esoteric, and subjective. This is when there is a stock which offers most of the punting public with an obvious and easy win. Such wins deliver back confidence, and can be the spark to a general return of liquidity. While it may be the case that Caerus Mineral Resources (CMRS) could be the Pied Piper in this respect, there are perhaps a couple of points to note. The first is the way the shares went on to make new lows even after the EV Metals strategic alliance in July, and the second that subsequent bad news was not only in the price, but the presence of EV makes the company “immune” to such events. On a separate note, it is very good to see the laconic Charlie Long in as CEO at the company.

Prospex / Tertiary Minerals

The last big winning period for small caps featured the likes of All Active (AAA) and Eurasia Mining (EUA). It could be that the start of a turnaround – perhaps from as soon as the end of this year, will have been made from the likes of Prospex (PXEN) with its Italian gas, or Tertiary Minerals (TYM) with the First Quantum agreement.

Oxford Biodynamics

One sign of the stock market regaining its mojo is when a company can get away a premium placing. This happened with Oxford Biodynamics (OBD) raising some £12m in total, not a trifle, in order to advance EpiSwitch.

The most esoteric sign of a stock market turnaround though, that my stockbroker friend did not touch upon, is when small-cap companies get lucky. This year to date has seen some painful dusters in the small-cap space, and we are probably due some more running out of funding options. Advance Energy (ADV) and Empyrean (EME) pulled the rug from under investors when they were all revved up for glory.

Abingdon Health

This is perhaps in contrast to the latest goings on at Abingdon Health (ABDX). Here it was interesting that there was a charting trendline break to the upside around the 6.5p level last month. Presumably, some insightful investors realised that the law courts rarely go against the Government, unless it is to do with Brexit of course. The Good Law Project, a wonderfully worth cause, may as well be King Canute in this matter and many others. What will be interesting to see is how much benefit shares of Abingdon get from this judgement, given that the best of the Gold Rush is over.

Lexington Gold

One of the more frustrating aspects of the small cap area is that investors tend to overhype the best situations, something which can very often lead to some left holding the baby in terms of paying too much for their stock. What is interesting about Lexington Gold (LEX) is that while there is good interest here, it does not seem to be overblown – yet. Key phrases from its recent interim results were “Potential for a significant further increase in the estimated resources for Loflin and Loflin South via additional drilling, subject to funding” and “Maiden JORC Mineral Resource Estimate for the Jones-Keystone side of the JKL Project is currently being prepared following the recent receipt of the 1m assay results for the Jones-Keystone project.” A June bear trap for the shares, and two subsequent unfilled gaps to the upside, suggest that while we are at near term highs around 4p, resistance at 6p from last year could be easily achievable in coming weeks.

Author @ZaksTradersCafe

Disclaimer & Declaration of Interest
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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