Will Fortune Favour the Brave

Friday, 14th March 2014 08:28 - by Osakisushi

Fortune Oil (LSE:FTO) has been one which bit me – in a good way. In Premium chat in the latter part of last year, I was asked to calculate a bottom potential. My sums suggested the share was heading to 7.75p no matter what and the share obliged, completely ignoring my calculations and instead, finding a floor at 8.5p.

Rather than adopt a sackcloth and ashes approach, sometimes being wrong is a good thing as it tends to reveal unexpected strength in a target instrument. When I’m providing commercial outlooks for clients, I’ve a rule of thumb which I call the 50% rule.

Essentially, if an expected fall bounces 50% of the way to the target, I take this as confirmation of a price being in an UP trend and therefore, will anticipate any future rise potentials making it 100% of the way to their intended ambition. It’s surprising how often this approach comes true. In the last week, both with Brent Crude and GOLD, I’ve been forced to adopt this hedging method with some pretty impressive results.

So, even though I got FTO wrong, I’m quite pleased and the chart below shows why.

Circled is a recent ‘Gap’ in the prices movement table. This sort of thing can be referred as price manipulation and it isn’t as evil as it sounds. Essentially, a human took control of the share and moved the price at the open. As BLUE shows rather clearly, this piece of manipulation shuffled the share price into a zone where it would be reasonable to expect a new trend commencing. YES, of course there’s a risk the price will reverse to CLOSE THE GAP, but the assuring thing is, someone somewhere thinks enough of Fortune Oil to believe the share price should go up in the future.

The burning question of course is, where to? The immediate trend break calculates with an immediate growth potential of 14.5p and it even looks sane. Secondary, in the event of the share price closing above this point, is at a longer term 17.75p. In the immediate future, should it behave as many other stocks experiencing such flamboyance, I shall not be surprised to see the share creep down that BLUE line until the price gets to around 12.15p. At that point, the future hopefully will become interesting.

Good luck with this ‘un. And for those in Premium, feel free to ask as some weeks I really need inspiration for something to write about!