Portfolio review of the week May 8th 2010

The Dow Jones Industrial Average fell 140 points, 1.3%, to close the week at 10,380, despite the Labour Department report showing job growth in April at its fastest pace in four years in the U.S.. The index was was off 5.7% for the week, its worst performance since March 2009, losing 772 points in 4 days. The Nasdaq Composite Index was down 54 points or 2.3% to 2,266. The S&P 500 fell 17 to finish at 1,111 and showing a fall on the week of 6.4%. The FTSE 100 fell 138 points or 2.8% on Friday to close at 5,123. Over the week the FTSE 100 declined 7.8% or 430 points. Over the past month the index is down 11% or 639 points.

What has gone wrong? Investors continue to worry about Europe's debt crisis, particularly Spain and Portugal's situation after the Greek bail out. The Australian resources super tax didn't help as it hit commodity stocks and signs of a slow down in China made Asian investors nervous. Then albeit a sideline issue, the hung parliament situation in the U.K. has not helped sentiment in this country. My worries about the safety of the market when the DOW had moved over 11,000 and the FTSE 100 was trading in the 5,800+ range have been borne out. When stock markets move up week after week (the DOW gained 8 weeks in a row) a correction is inevitable, though the size and speed of the move down has surprised me.

Despite the heavy falls on both side of the Atlantic, the portfolio has done well this week but only because Falkland Island oil explorer, Rockhopper Exploration (RKH) came good. In fact its performance was exceptional. The other holdings have suffered in the sell off, but GW Pharma (GWP) has held on well considering what the indices have done. However, Contract for difference (CFD) bets on the FTSE 100 and DOW industrials were unsuccessful and fell through stop losses and unfortunately ate into the RKH gains.

Rockhopper Exploration (RKH) - After dropping into the mid 30p zone on Wednesday, the announcement on Thursday that the company had found a substantial oil reservoir on its Sea Lion prospect in the North Falklands Islands basin moved the share price to around 92p by close of play. Then the company issued a further update on the quality of the oil in the reservoir on Friday which confirmed the potential quality of the find. The shares shot up a further 51.5p to 145p. It was a week of trading in and out of RKH on Thursday and Friday with some nice profits made. I sold my final tranche at 125p on Friday. No doubt the shares have further to go as news flow on the analysis of the find continues to flow but I will take my profits for now. A drop yesterday to 84p was certainly a classic market maker shake to scare investors into selling and clearly several did. By the afternoon the shares were up 74%.

Not only it is good news for RKH shareholders but clearly good news for UK PLC. There is a talk now of an oil field as large as the North Sea.

GW pharma (GWP) - A good week for GWP as the shares held steady at 116p despite the broader market falls. Awaiting Sativex news which should be due any day now.

Ithaca Energy (IAE) - Despite some good news from the Stella North Sea field in relation to the sidetrack well the shares dropped 25p or 13% this week to finish at 168p. On Friday IAE fell 5% as oil fell to $78 per barrel.

Coal of Africa (CZA) - Coal of Africa shares fell nearly 17% this week to finish at 121p as the global price of coal fell and investors worried about the Australian resources super tax. On Friday CZA confirmed the new Australian tax would have no impact on earnings since they have no sites in Australia. The position initiated at 130p is under water but the prospects look very positive for the medium term especially with the London main market listing due Q2.