My last blog post featuring CAZA saw its share price peak at ~15.75p at the start of 2012, followed by a gradual price drop which has lasted for most of the year.
Returning to that trend, I mentioned that it was pre-empted by a rise in daily money flow. I suspect that many investors who were invested in CAZA since 2010-2011 before the price plummeted after the company experienced a dry hole in an exploratory drill have been mourning their losses since then and the price has remained flat for much of 2012. This is probably due to both old and new investors having the fear, especially when low trading volume and very short term trends (of a few days) were leading to nothing substantial in upward price movements. However, if you were looking at the bigger picture you would have seen through this and built up a holding when no-one else was looking, especially in light of the following....
On 2 February 2012, CAZA issued a news announcement which I thought was rather interesting – they talked about their Bone Springs assets more than ever before and mentioned how the area was having a surge in activity from the larger oil companies in America. It didn’t take much research to see why Bone Springs has had more interest lately – there appears to be loads of untapped resources there and the overall feeling I got from the information was that drilling in Bone Springs was more successful than not.
Here is where I tested out my theory that even buying small amounts of shares can still yield a reasonable return in a short length of time. I’ve been in and out of CAZA since the end of 2009 so I have a good idea of its innate rhythm and I trust the signals that I see in it, especially as it doesn’t have many shares in circulation (less than 200 million), which makes monitoring the longer term trend easier. The main observations were:
- A long bullish divergence in daily volume oscillator between October 2011 and October 2012
- A slow rise in daily money flow into CAZA between July 2012 and October 2012
Now also remember that I had done a little research on the Bone Springs play, which CAZA have been ramping up activity in recently, as far back as February 2012 so my purchases were bought knowing that any major success in Bone Springs may trigger a speedy price rise, especially as money and volume had already been entering CAZA on the quiet. I built up my holding as follows – in some cases it was at or just before the hourly kumo breakout:
23 August 2012
BUY 300 @ 6.68p
total = £25.31
17 September 2012
BUY 300 @ 6.6p
total = £25.07
18 September 2012
BUY 300 @ 6.85p
total = £25.80
18 October 2012
BUY 525 @ 7.5p
total = £44.63
30 October 2012
SELL 1425 @ 9.6p
total = £131.55
Total bought 1425 shares for £120.81
Total sold 1425 shares for £131.55
This investment made a gain of 8.89%.
At the sale price of 9.6p, the bid of 9.5p exceeded the R2 level (second resistance level), which is a sell signature I prefer to act on. The 200 day exponential moving average was also looming at ~10.25p and I originally had that as a short term target but I chose to play it safe and take 9.6p. In hindsight, it looks like I left the party with this holding before the party actually started! Even before news about the flow rate from the latest Bone Springs drill arrived the price moved up with a dramatic increase in volume and got to above 14p before news. I wasn’t too bothered because I stuck to my original goal and played it technically correct according to my rules, especially as up until that point there was absolutely no hint of where the volume was going to come from.
Eventually the price trotted all the way up to 21p, smashing through various daily and weekly moving averages and even closing above the weekly ichimoku cloud at 18.75p! It was a very impressive rise, and if anything, it has put CAZA back on the radar of investors again. I didn’t lose out on the bigger rise to 21p because I had various other CAZA purchases locked in at prices between 12p and 20p (when I was testing out the ‘buy on falling price’ technique.....which isn’t something I wish to repeat ever again!), therefore I took this opportunity to retrieve all that capital and profit so that the next time CAZA goes oversold I can begin with a larger amount of capital from which to work with. I do still have purchases above 21p because CAZA might not retrace – if it does retrace then I can repurchase, but if it continues to go up (especially with further positive news announcements) then I still have exposure to any future gains above and beyond 21p. If the original 1425 shares in CAZA was my only holding, then I would either slice profits into a rise or retrieve initial capital to leave any freehold shares for the long term, providing the investment case for CAZA was still positive.
The key thing from this example is that we had a lot of information available to us before the rise started in October/November 2012 – both fundamentally and technically. Even if an investor was still unsure as to the risks of drilling for oil/gas, then we also have the opportunity to tailor how much we buy to take those risks or uncertainties into account. In this example I used small amounts of capital that most investors would deem pointless, but how much does someone have to pay for 1425 shares at 21p?.....answer....just over £300, whereas I bought the same for ~£120.
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