Portfolio review of the week June 27th 2010

The Dow Jones Industrial Average closed down 9 points, or 0.1%, to 10,144 on Friday, with a 2.94% fall for the week after the U.S. government revised 1st quarter economic growth estimates downwards led by weak consumer spending. The Nasdaq Composite climbed 0.27% to 2,233, but closed down 3.7% for the week. A notable faller on the Nasdaq was Research In Motion which dropped 11% to $52.2 after the company reported a 20% rise in first-quarter profit but disappointed on shipments of Blackberry's. The Standard & Poor's 500-stock index rose 0.29% to 1,076 but fell 3.7% on the week. Financial stocks moved up, helping to counter the move down in consumer related stocks, after the new financial regulation package was agreed and U.S. politicians in a form which was felt to be less onerous than previously feared.


The FTSE 100 was down 54 points to 5,046 on Friday, with a 4.7% or 253 point fall on the week. BP (BP.) continued its downward spiral closing at £3.04 on fears that potential storms in the Gulf of Mexico would hinder the efforts to stop the flow of oil from the leaking well. Commodity stocks had a particularly poor week as worries about a double dip resurfaced and metal prices softened. Generally sentiment took a tumble and the bears are firmly in control.


As I mentioned a few weeks ago, positions were trimmed back significantly as I had concerns about the market strength. For this reason, the portfolio is relatively limited at the current time. I am holding Coal of Africa (CZA) which has reversed back to 105p, my original purchase price and Ithaca Energy (IAE) which has had another poor week, finishing at 134p, down 10%. However, I am hopeful of a reversal for this company.

Timing is everything for GW Pharma shareholders today

After moving up 9% to 156p early in the day, GW Pharma (GWP) succumbed to some heavy profit taking and finished down 6.4% at 132p. News from the company's commercial partner Bayer that Sativex would be priced at £11 a day on the NHS with expectations of sales in the UK of around £11 million and £50 million in Europe were at the bottom end of some analysts expectations and this probably served to drive sentiment the wrong way. It was certainly a case of excellent timing today for those shareholders able to sell their stock over 150p given it lasted for less than an hour. As I said on the blog yesterday, I do not see catalysts to push the share price much higher until tangible sales of Sativex come through which are ahead of expectations, since the larger milestone payments relating to European approval are now in the bag.

Portfolio review of the week June 19th 2010

The Dow Jones Industrial Average rose 16 points, or 0.16%, to 10,450 on Friday. The index climbed 2.4% on the week. Sentiment was helped by a report from Caterpillar (CAT) that it had achieved a 38% year-over-year increase in machinery sales in Asia for May giving signals that demand in the region was still robust despite concerns about the strength of the recovery. The Nasdaq Composite rose 3, or 0.1%, to 2,309 on Friday, making seven straight days of gains for the index. For the week the index was up 3%. The Standard & Poor's 500 index gained 1.5, or 0.13%, to 1,117 and climbed 2.37% this week. The FTSE 100 failed to achieve eight straight days of gains with a fall of 3 points to 5,251 on Friday, giving a rise of 1.6% for the week. The index was boosted by a partial recovery in BP (BP.) during the week after the company agreed to ring fence $20 billion in an escrow account to cover potential liabilities from the Gulf of Mexico spill and said that it would suspend its dividend giving reassurance that the company could cover the rising costs.

Overall sentiment improved considerably last week, with fears about the health of the European debt situation and continued Asian growth forgotten for now. However, I am sceptical about the strength of this rebound as these concerns have not disappeared by any means and the continued rise in the gold price to $1,258 an ounce gives an indication that investors continue to be concerned about the strength of the key currencies, notably the dollar and euro, with the impact that debt will have on future inflation prospects. Whereas investors were happy to park cash in dollars in the past, gold now seems to be the preferred safe haven. Whether the gold price continues to rise unabated is another matter, given its 35% increase in the last year.  With reservations about the stock markets at this time, I am continuing to take profits on these upward moves and buy on the dips. I await the next major panic selling event when I am bulk up my holdings. The timings of any lurch downwards is always the uncertainty in trading but I do not feel inclined to put all my cash to work right now. The U.S. second quarter earnings season in July will a good opportunity to increase my trading exposure.

The Contrarian Investor UK portfolio is a little light this week after some positions were sold. I wait for now for the right buy points.

GW Pharma (GWP) - After 9 years  of waiting, GW Pharma share holders were finally rewarded on Friday with the news that Sativex had been approved by the U.K. regulatory agency the MHRA. A press conference will be held next week jointly by Bayer and GW to formally announce the launch of the product. The shares rose 9.3% to 141p after a 5% increase on Thursday, making it a 19p or 15% rise for the week. Although I believe that Sativex should be a commercially successful product for the company, I do not foresee that there are significant short term catalysts to boost the share price much further than the 140-150p range. For example, final approval in Spain is expected to take several months more and European roll out will not occur until early 2011. Furthermore, there is a good possibility of profit taking moving the price down . For this reason, I decided to sell my final holding in GWP on Friday. Trading in and out of this stock has proved to be an excellent investment over the last few months, illustrating that for these smaller companies, short term trading can produce better results than buy and hold. 

Coal of Africa (CZA) - Following the £55 million fund raising earlier in the week at 110p, the shares finished the week at 113p, a rise of 8% on the week. I continue to hold for a rebound in this stock after topping up at 105p.

Ithaca Energy (IAE) - IAE finished broadly flat for the week at 148p despite a relatively upbeat AGM where it was confirmed that the company had $50 million of cash with no debt as well as a rising production outlook. Continuing to hold.

ITV (ITV) - After a nice move up to over 58p this week as sentiment recovered and revenues get a boost from the World cup I have taken profits in this stock. A move back to 51-52p would signal a buy back opportunity.

RockHopper (RKH) and Falkland Oil and Gas (FOGL) - After assessing the opportunity for the Toroa prospect which is currently beng drilled by FOGL, I have decided to divest my holding. After the good fortune on Rockhopper earlier in the year I have decided not to push my luck. The geological structure on the Toroa well is not linked to the Sea lion Rockhopper find. I continue to hold RKH.

GW pharma sees price action as Sativex approval finally looms

GW pharma (GWP) moved up around 10% early this afternoon but fell back to close up 5% at 128p. Although volumes were not dramatic on the buy side, this move is presumably linked to imminent Sativex approval in the U.K. and/or market makers adjusting bid/offer levels on a shortage of stock for a larger buyer waiting in the wings i.e. encouraging profit taking by smaller shareholders as their positions increased in value.

Coal of Africa raises additional funds

South African coal miner, Coal of Africa (CZA), yesterday raised £55 million through a placing at 110p. At only a 0.2% discount to the previous day's closing price this confirms institutional support for the Coal of Africa story.

The company will use the proceeds to provide Makhado mine bulk samples (US$7.5 million), Makhado Definitive Feasibility Study (US$6.5 million), potential acquisitions (US$15 million), U$20 million to repay the existing JPMorgan working capital facility and US$20 million for general working capital.

The shares closed down around 2% at 107p which gave a further opportunity to top up the holding. The company announced on Tuesday that the main market London listing and would be delayed until November to enable the required listing requirements to be met, in particular the 2nd quarter financial results.

Given the drift down in CZA's share price over the last 2-3 months back to the 105p+ level, hopefully the placing will now give a floor and enable a recovery back to £1.50 as production continues to ramp up.

Market remains positive

The markets remained positive today after the euro continued it's rebound against the dollar, hitting 1.23 at it's high, increasing appetite for riskier assets. The DOW is currently up 93 to 10,283 and the FTSE 100 closed at 5,218, up 16. Worries about Spanish banks access to funds, another downgrade of Greek debt, and weak U.S. housebuilders data were offset by positive economic data. A bid for BSkyB by news international helped offset weakness in the Ftse 100 caused by further falls in BP. The oil giant was pressurised by a debt downgrade and calls to ringfence up to 20 billion dollars to cover claims from the Gulf of Mexico spill.

Portfolio review of the week June 12th 2010

On Friday, the Dow Jones Industrial Average gained 38 points, or 0.4%, to end the week at 10,211 (up 2.8% for the week). The S&P 500 Index gained 5 points, or 0.4%, to 1,091 (a gain of 2.5% for the week) and the Nasdaq Composite Index gained 25 points, or 1.1%, to finish at 2,243 (a gain of 1.1% for the week). The FTSE 100 rose 31 points to 5,164, a rise of 0.7% on the week.

Markets were driven upwards by some encouraging consumer sentiment data in the U.S. and receding fears about the European debt situation. Overall the week proved highly volatile as traders worried about the potential impact of further sovereign debt crises such as Hungary. However, such volatility sometimes offers up some excellent trading opportunities. For example, for those investors with the nerve for it, BP offered some good "bottom fishing" trades and economically sensitive stocks like U.S. industrial company Caterpillar (CAT) showed sufficient moves over one or two day period to enable day trading profits. It seems clear that the battle between the bulls and bears will continue for the foreseeable future. Hopes of strong results from the quarter two earnings season starting July and positive consumer related data will be looked upon with interest by market optimists, whilst continued fears of euro zone defaults and a slow down in China will fuel the bears.

Contrarian Investor UK believes that any moves below 10,000 on the DOW and to the 5,000 mark on the FTSE are good buying opportunities as despite the threats to recovery, the global economy seems to have left recessionary pressures behind it, albeit with the help of massive government stimulus packages (notably the U.S. government's). The down side of all this stimulus and previous periods of high spending is that many countries including the UK are now being force to pay down the huge debt burdens with severe austerity packages which may crimp the bounce back to economic health. So this remains a trading environment, buying on the peaks and selling on the dips. I for one would not be an advocate of buy and hold and I am continuing to trade in and out of favoured stocks where I know the trading pattern and can take advantage of weakness.


BP (BP).) - A few trades were made in BP this week. Some failed, triggering 5% guaranteed stops but others succeeded, notably one initiated at £3.40 when sentiment hit rock bottom on Thursday morning after a 15% fall in the U.S. market the night before. Overall profitable but I was wishing that I had more conviction when the company moved so low. But the move down from £4 + was so rapid, I felt that caution was prudent especially with the bashing coming from across the Atlantic and the likelihood of dividend suspensions driving out income investors. It now seems that value investors looking for stocks with low future price/earnings multiples have begun to buy in.

GW Pharma (GWP) - A volatile week for GW pharma, with news of Sativex UK approval anticipated by the end of the month. It finished at 122p, up 5% for the week after moves to the 113p level earlier. Continuing to hold a reduced position after the interim results on anticipation of positive news.

Coal of Africa (CZA) - Coal of Africa fell back to my purchase level after pressure on commodity stocks this week. I have topped up at 105p given my conviction in this company and the share price levels currently are below those seen when Vele mine approval was still to be received. Upside of the remainder of the year seems likely with increasing production from its key coal mines in South Africa.


ITV (ITV) - With the TV company's shares dropping to 51p on Wednesday, I took the opportunity to buy in and then sold most of my position at a 10% gain on Friday after a move above 56p. Given the trading range of this share, moves down towards 50p seem to be invariably profitable and with earnings likely to be strong in Q2 due to the World cup it is a good company to hold.

Ithaca Energy (IAE) - Despite a 30% increase in proven reserves in the North Sea, Ithaca had a disappointing week finishing down 8% on the week at 146p. I continue to hold as fundamentals seem strong with top notch management.

Barclays (BARC) - A fall at around the £2.76 mark on European debt worries was an opportunity to buy in and sell out on a rise back to £2.90.

Falkland Oil and gas (FOGL) and Rockhopper (RKH) - Positions in these Falkland Island stocks restarted with news from the FOGL Toroa drill prospect due to early July and with Rockhopper completing a heavily oversubscribed funding raising at £2.80 seemingly giving a floor to the price and with plenty of news to come. After a fall to £2.70 on Friday morning, RKH bounced back to £2.90 presumably facilitated by market makers trying to fill orders for instituions who wanted more stock than was on offer in the placing.

German court decision and euro strength helps markets

Last night the the Dow Jones Industrial Average finished at 10,173, up 273 points or 2.7% after a German court blocked attempts to stop contributions to the euro zone default prevention fund. The S&P 500 Index climbed 31 points, or 3%, to 1,086. A strengthening euro above $1.21 also helped sentiment.

The FTSE 100 is currently up 48 points to 5,179. But the good news was tempered this morning when figures from the Office of National Statistics show a 0.4% fall in manufacturing production in April. There were expectations of a 0.5% rise after a 2.2% increase in March. Producer prices rose by 0.3% in May, against expectations of a 0.5% rise demonstrating that manufacturers are starting to struggle to push through price increases to buyers.

BP (BP.) is currently up 7% or 28p or 393p as sentiment turned more positive about the medium term impact on dividend payments after the steep falls earlier in the week. Unfortunately the portfolio was unable to benefit as the positon was sold yesterday at a profit but a frustrating not to take part in today's rise after the falls to around 340p yesterday morning.

Wall Street reverses and finishes below 10,000

Stock markets are again under pressure this morning as the U.S. markets reversed strong gains last night to finish down. The Dow Jones Industrials closed at 9,899 down 41 points after being up more than 100 points earlier in the session. The only reasons for the switch in sentiment seem to have been a weakening euro (back below the $1.20 level) and a huge sell off in BP shares on dividend cut or even bankruptcy fears which sent it to a 14 year low.  BP was forced to issue a statement this morning that it was financially strong, had good cash flows and had a borrowing level below target. It opened down over 30p to £3.38 but has since recovered to £3.68. A buy for the portfolio was made on the weakness which now seems overdone since its seems unlikely the firm would ever go bust despite the Gulf of Mexico liabilities.

The FTSE 100 is currently down 31 points to 5,057 after moving below 5,000 in early trades.

Ithaca Energy ups reserves estimates

North sea oil explorer, Ithaca Energy (IAE) today reported a rise in total reserves following the successful appraisal of its Stella well which will come into production in 2012. At April 30, the company's total proved reserves stood at 20.9 million barrels of oil equivalent (mmboe), up 30.6 percent from Dec. 31, while total proved and probable reserves grew 12.8 percent to 41.96 mmboe. Proved reserves associated with the Stella field more than doubled to 10.2 mmboe, while proved plus probable reserves rose 61 percent to 14.4 mmboe.

After falling from close to £2 over the last month or so to hit 145p yesterday, the shares rose 7p or 5% to 152p today. Given the progress the company has made over the last 2 years with production now averaging 5100 bpd from the existing Jacky and Beatrice fields, the increase in reserves gives further impetus for strength in the price over coming months. This is a well managed, debt free and well financed company which with the right acquisitions could become a signficant North sea producer over the next 3 years.

BP slides again and triggers sale

Further falls in BP (BP.) were triggered today on fears that political pressure from the Obama administration would mean that dividend payments would be suspended or cut due to the impact of the Gulf of Mexico oil spill. The shares fell as low as 380p today, triggering a stop loss on a buy yesterday. This stock is certainly struggling to find a bottom having fallen from £6.50 since April and buyers seem in short supply as income funds divest their holdings. Contrarian Investor's attempt at bottom fishing on this one proved unsuccessful with a tight stop loss of 5% in place. However it seems conceivable that any further progress on plugging the Gulf of Mexico leak and further news on the dividend in July will finally put a floor on BP's valuation.

Markets back in positive territory on Bernanke comments

The FTSE 100 moved back up 57 points to close at 5,086 and the Dow Jones industrials are currently up 118 to move past the 10,000 barrier to 10,058. Commodity stocks were helped by reports from China that exports were 50% higher in May than a year ago. Comments by U.S. Federal reserve chairman Ben Bernanke also helped sentiment when he said last night that and today that any residual impact of Europe's debt trouble on U.S. economic growth would likely be modest so long as financial markets continue to heal and he pressed politucians to address the scale of their budget deficits both in the U.S. and globally. After the falls of the past few days, traders were saying that economically sensitive sectors like industrials, infrastructure and technology were over sold.

GW Pharma moves down as Sativex UK approval awaited

GW Pharma (GWP) has continued its downward move since hitting the 130p mark at the interim results in April. Lack of buying pressure means that it looks like the price is being walked down by a few pence a day to its current 114p by the market makers and further weakness may be evident before final approval and launch of Sativex in the U.K.. The company expects these milestones to be hit by the end of June. After several sales of GWP around the interims and then around a week ago in the £1.20-1.30 range, I continue to hold but with a reduced number on this downward drift. Any large fall back to the £1.00 level will be a buying opportunity and chance to top up. As we saw following the regulatory announcement in March, GW can be volatile and easily trade in a 30p range on no news.

Some buying opportunities on weakness

The FTSE 100 continued to fall today and is currently down 55 to 5,011 after falling below the 5,000 mark earlier in the day. A move back to the 5,000 level has meant that I have been making some selective buys on weakness on stocks I have been watching for the last few weeks as they hit my target price. Although further falls in the market are possible, quite a few names are back into the "good value" range. Timing the absolute bottom is never easy, so its a question of picking away rather than going all in.

BP (BP.) is down 19p or 4.4% to £4.11 following US president Barack Obama's comments that he'd sack the British company’s chief executive Tony Hayward. During an interview due to be aired tonight he said "He wouldn't be working for me after any of those statements," referring to Haywards comments like "it's a big ocean". A second piece of bad news came for BP when Russia’s state-run gas giant Gazprom said it had no need for the British oil company’s Kovykta gas field in Siberia which at one point in 2007 was said to be worth nearly $1 billion. Although I am a little nervous about BP, I today bought a position at £4.13 with a 5% guaranteed stop loss given the speculative nature of this share.

Rockhopper (RKH) announced that it had raised £48.5 million for the further development of its North Falkland basin field with the issue of 17,320,000 new ordinary shares at 280 pence each. I took the opportunity on this news to re-establish a holding in the company at £2.86 following yesterday's 8% fall as rumours of the placing circulated. I have also bought a small holding in Falkland Oil and Gas (FOGL) for potential gains on a discovery on the Toroa prospect which is currently being drilled to a depth of 2700 metres and was spudded on June 1st.  Target depth is expected 35 days from June 1st.

The fall in ITV (ITV) back to 52p also was taken to buy back a holding in the company which has drifted from the low 70p range in the last month or so and should benefit from an increase in advertising during the World Cup.

BP taking the flak for Deepwater horizon disaster but what about others?

Since the Deepwater horizon disaster in the Gulf of Mexico BP's (BP.) share price has fallen from around £6.50 to today's £4.38, a drop of 33% wiping £40 billion of its market capitalisation. Although little is being said in the media of the other company's involved in the rig disaster, they too have seen their share prices hit hard. President Obama and the U.S. oil industry seem to be keen to maximise BP bashing whilst forgetting that U.S. companies like Anadarko have major interests in the well.

Anadarko Petroleum(APC) owns 25% of the well, Transocean Ltd. (RIG) operated the rig, Halliburton (HAL) provided the drilling equipment and Cameron International Corp. (CAM) provided the failed blow out preventer. Transocean has fallen from the high $80's to $50 since the disaster and Halliburton has fallen from $35 to $23.

Deepwater drillers not involved in the Deepwater horizon have also fallen heavily as the Obama administration announced a 6 month moratorium on new deepwater drilling. For example, one quality stock which stands out is Noble Corp (NE), falling from $43 to $27 and now trading on a forward price/earnings of around 5. At this price level it looks a tempting entry point as the block on drilling will be unlikely to be retained for any length of time given the pressure to find new sources of oil.

For the Contrarian Investor UK portfolio some of the oil names such as Conoco Phillips (COP) at $50 and Chevron at $71 looks tempting. The sector has taken a tremendous hit on the negativity surrounding the Gulf of Mexico issues and the effect of the oil price moving back into the low 70's. The oil price has moved down as speculators started to bet against the commodity when it moved into the 80's and the strengthening U.S. dollar also reduced it's value. I am looking at an entry point in some of these stocks if markets look weak again during the early part of this week.

Continued economic worries move down stocks

The after effects of last Friday's disappointing U.S.jobs numbers and fears about the health of Hungary and other European economies are moving stocks down this morning. The FTSE 100 is currently down 73 points to 5,051 and Dow futures are down a further 40 points to 9,897. Commodity stocks are baring the brunt of the pain with metal prices falling heavily - Kazakhmys (KAZ) is down 3.5% at £10.80 and Aquarius Platinum (AQP) is down 5% to £3.41.

BP (BP.) moved against the trend with a 5p rise to £4.38 as they reported some success in stemming the flow of oil from the damaged well in the Gulf of Mexico.

Tidjane Thiam looks like escaping the chop at Pru

After the Prudential (PRU) pulled out of its audacious bid for U.S. insurer AIG's Asian business AIA on Wednesday, it looks like Chief Executive Tidjane Thiam will be let off the hook for losing shareholders £450 million in investment banking fees and break clauses (which amount to £150 million).

With large institutional shareholders refused to play ball and said they would vote against the deal to pay $35.5 billion for the AIA assets (a 75% yes shareholder vote was needed), Thiam's team went back to AIG, which is 80% owned by the U.S. Treasury, to ask for a 10-15% reduction in the price. Unfortunately, the AIG board voted down this idea and the Prudential was forced to concede that the deal was no more last week. This was a somewhat surprising result, given the alternative option for AIG is an Asian flotation of AIA with all its uncertainties. However, there were fears that even with a price cut to $30 billion or so, the deal might still have been rejected by shareholders, leaving AIG with red faces all round.

Although the deal to buy AIA's assets looked great on paper in that it would make the Prudential by far the largest insurer the fast growing Asian region with the potential for significant cost cutting through integration synergies, institutions were concerned about the premium that the Pru were paying. The big mistake that Thiam made was to underestimate shareholder resistance and convince key shareholders even before the initial negotiations were finished. The Pru wrongly assumed that with a bit of persuasion after the event, institutions could be brought to the table to stump up the huge capital needed for the rights issue.

So the Pru management has been left with egg on its face and owners of the shares seriously out of pocket. At £450 million, it equates to 18p for every share. Shareholders must be hoping that Thiam drives value in a big way over the next couple of years given his £5 million pay package.

Portfolio review of the week June 5th 2010

After a week of significant volatility, markets fell heavily yesterday, with the Dow Jones Industrial Average falling on disappointing jobs news from the U.S. and fears of a spread in the European debt crisis due to Hungary. The Dow fell 323 points, or 3.2%, to 9,931 and finished the week below the key 10,000 mark and 2% lower for the week. The Nasdaq Composite dropped 84 points or 3.6% on Friday to finish at 2,219 and down 1.7% for the week. The S&P 500 dropped 3.44% or 38 points to 1,065 with a fall of 2.3% for the week. The FTSE 100 fell 85 points or 1.6% to 5,126 on Friday and finished down 1.2% for the week. However, FTSE futures are pointing to another 50 point drop on Monday since the worst of the Wall Street falls were not seen until after the close of the European markets.

Industrial and infrastructure stocks (e.g. Caterpillar CAT down 5.5% at $57.7) were hit particularly hard as a weakening euro means that revenues will be hit as the sales are translated back to dollars on currency conversion, plus any weakening of the European economies will hold back sales volumes. In addition, a weakening of commodity prices such as oil (which dropped over 4% to $71) and banking fears hit financials, energy and commodity stocks - Conoco Philipps (COP) was down 3.7% to $50, Barclays (BARC) was down 4.7% to £2.88, BHP Billioton (BHP) dropped 3.7% to £17.71.

The key reason for the decline was that U.S. non farm payrolls rose by only 431,000 last month, short of expectations for a rise of 515,000 jobs. Most of the rise was due to temporary census staff hiring (which created 411,000 jobs) and only 41,000 private sector jobs were created (against 218,000 in April). There were also downward revisions to payrolls in March and April, both 22,000 lower at 208,000 and 290,000 respectively. The unemployment rate dropped to 9.7% in May from 9.9% the previous month, in line with expectations.

On top of this the euro got a battering with a fall below the $1.20 level against the dollar being the lowest point for four years as fears that Hungary may suffer a Greek style debt crisis emerged. Hungary is in the European union but not part of the euro. However, after the concerns about Spain last week, worries about Hungary have given investors plenty of reasons to be pessimistic about the state of European finances and the health of its banks. A spokesman for Viktor Orban, the Hungarian Prime Minister, suggested that his country had only a slim chance of avoiding a Greek-style debt crisis. Peter Szijjarto, the Prime Minister’s spokesman, said that his Government was “ready to avoid the path that Greece took ... After realising what reality is, we will not hesitate to act.” The potential exposure to any Hungarian default by European markets is a stark reminder that the write-down's of the banks may not be over.

The Contrarian Investor UK portfolio has had limited trading over the last 2 weeks due to holiday. But positions were initiated in Coal of Africa (CZA) at 104p and BP at £4.19. The Coal of Africa position is retained but BP was sold on Thursday at £4.50. Short term trades were all put in play on Barclays (BARC), Man Group (MAN) and Prudential (PRU) which were all closed within a day or two as the market rebounded from the market falls late in May. The falls of last week have put some interesting opportunities on the table and I will take these on any further weakness during the early part of next week especially if the FTSE moves below 5000 again. Any fall in the U.S. S&P 500 below the key technical 1,050 level will be watched with interest.

It was disappointing not to be involved in the huge spike in the Falkland Islands oil shares yesterday after Rockhopper (RKH) issued a very positive technical update on its Sealion oil find in the North Falklands basin. RKH finished up 33% at £3.19, Desire Petroleum (DES) was up 22% at £1.00 and Falklands Oil and Gas (FOGL) was 10.5% at £2.06. Rockhopper upgraded the size of the find to 242 million barrels recoverable with further increases likely. After seeing the price drop to below a £1.00 on Wednesday on false rumours of a poor quality oil discovery (and possibly some sort of manipulation), buyers at this point have seen a 300% plus increase. After having my finger on the trigger to buy at these levels I am frustrated that I didn't proceed. Nice profit missed. It is incredible to think that Rockhopper was trading in the 35p range as little as a few weeks ago before the results of the Sealion appraisal well. So continued holders are nearly at the "ten bagger"stage. You don't see too many of these trading opportunities and I am sure that many have profited nicely. I am also sure that many lost a lot of money during the "flash crash" of Wednesday. It has been positive to see some good profits in these Falkland Islands shares, but what could have been if I'd had the nerve!?

Markets looking strong today after rise in U.S. last night

On Wednesday, the Dow Jones Industrial Average gained 225 points or 2.3% to close at 10,250 with all 30 components closer higher. The Nasdaq Composite Index rose 2.6% or 60 points to finish at 2,281 and the S&P 500 rose 28 points to 1,098. The rise was driven by an industry report that pending home sales were up 6% in April. However commentators have noted that this is probably as a result of buying activity ahead of the expiry of a tax credit.

The FTSE 100 is currently up 85 points to 5,237 with miners in particular helping the index. For example Rio Tinto is up 3.5% to £32.47. BP (BP.) bounced this morning following news that progress to cut off the flow of oil had progressed after a jammed cutting saw had been dislodged at the well head. After being as high as 4.5% up at 450p, it is now 15p higher at 444p. Dow futures are up 26 points.

Rockhopper suffers its own "flash crash"

Contrarian Investor UK blog is back in action after a 2 week break and what a period its been with the markets falling heavily and the U.K. blue chip bell weather BP (BP.) falling close to £4. Then there was Prudential (PRU) backing away from its Asian AIG acquisition following institutional share holder pressure. As they say, a week is a long time in politics but a lifetime in investing!

On May 6th 2010, the U.S. Dow Jones Industrials suffered what is now termed a “Flash crash”. Within a 5 minute period starting at 2.47pm, the index fell 990 points or 9%, then, in around 90 seconds, the index regained 543 points. At the close, the DOW recovered to be down 347.8 points or 3.2%.

The cause of the "flash crash" is still not certain, but various theories have been explored by the U.S. SEC (Securities and Exchange commission). First there was the the "fat finger theory". Although now discounted, there were rumours that a trader mistyped a sell order, mistakenly selling billions of dollars of shares rather than millions. Then attention was focused on automated computer trading systems of the DOW index which may have caused an avalanche of sell orders, particularly platforms which used high speed trading (buying and selling stocks within seconds). Again this seems to have been a contributor to the fall but not the only cause. But the most likely explanation was a sudden loss of liquidity in the market with a huge amount of sellers overwhelming a very limited number of buyers exacerbated by stocks automatically selling on automated stop loss orders. The loss of buying strength was caused by false rumours in the market that the euro was on the verge of collapse and a major bank had gone down in the style of Lehman.

Today Rockhopper Exploration(RKH) inexplicably suffered its own "flash crash". After trading at around the £2.70 mark for much of the day it suddenly began to fall at around 12 noon, falling through the £1.00 barrier and moving into the 60's at its low. The company was forced to issue a news release at 13.52 stating "notes the significant share price movement today. Rockhopper is not aware of any reason for this movement but makes the following update...". Like the DOW flash crash the reasons do not seem to be clear. Some have speculated that this was a market maker induced "tree shake" to flush out sellers and fill orders for large institutions. However, the scale and speed of the falls not only in Rockhopper but also in Desire Petroleum (DES) and Falkland Oil and Gas (FOGL) makes this appear unlikely. It is possible that a "fat finger trade" occurred of sufficient size or more likely a relatively large institutional sell order (a 125,000 sell occurred around 12) which may have destabilised the market in the shares and triggered a cascade of sell orders as automatic stop losses were triggered electronically. As many private investors hold the stock it is plausible they were using automatic stop loss orders which added to the selling panic. Like the DOW "flash crash" a sudden loss of liquidity moved the stock to unbelievably low levels before buyers returned and moved it back to a more normal trading pattern. False rumours of problems relating to the quality of the oil find also seem to have been circulating in the City which added to the downward pressure.

So what are the lessons for private investors of the Rockhopper debacle. First be very careful with stop losses on risky small cap shares since a market maker "tree shake" or sudden rise in selling pressure can move the share price through your stop loss and then before you know it the price has rebounded and you are out of pocket. If you prefer to use stops, them make them wide and normally you won't be caught out (but today's unprecedented Rockhopper fall would still have been difficult to predict in terms of setting a realistic stop loss level). Don't assume a large move in the share price of a small cap is connected with a real news event. False rumours can crush the price temporarily before the false stories are countered.

I was looking to buy into Rockhopper today with the volatility in the 80p-100p range but the sudden moves were frightening even for me without knowing what was going on. Given the news flow to date it seemed unlikely that the reported oil reservoir had come to nothing. But my concern was for an accident BP style on the Ocean Guardian rig in the Falklands so I held off buying. If I'd had the nerve it would have been a very profitable trade indeed. Something seems to have gone very wrong today in the trading of Rockhopper shares and it is probably the small investor that has taken the brunt of the pain.