Back to reality for Linc Energy

By Kenneth Robson on July 8, 2013 • ( 1 )

Front page headline on Adelaide’s “The Advertiser”, Wednesday, January 24, 2013.

OIL STRIKE. Outback find ‘big enough to fuel Australia’. South Australia is sitting on oil potentially worth more than $20 trillion, independent reports claim – enough to turn Australia into a self-sufficient fuel producer.

The market had anticipated this exciting discovery well before the formal announcement. In November 2012 the share-price languished at around 50 cents. Towards the end of the month it started to lift in an extraordinary way. An unbelievable six fold increase within six weeks to reach $3 soon after the announcement. It is hard not to think that this trading resulted from those who had become aware of the discovery.

Those investors who believed the intemperate hyperbole of the announcement would have expected further gains and would have been bitterly disappointed when soon afterwards the share-price entered a sharp decline. Only in the last week of June did the falling share-price find support at 80 cents forming on the daily chart a double bottom, before rallying now to finish today just over $1 ($1.04)

Linc Energy falls back to earth.

At this level Linc Energy may be over-sold and worth reappraisal.

Without doubt the company has impressive conventional shale oil and gas assets in South Australia, and coal assets in Queensland plus overseas reserves. It will however need more finance and a reputable oil and gas producer partner to bring the reserves into production.

On the 25/06/2013 the company stated that it was looking at the divestment or demerger of the coal division to concentrate on its core business, the “Underground Coal Gasification Process” (UCG), on a global scale.

This could be profitable, rather than negative for share-holders.

Technical features ignoring fundamental considerations.

Continuous down-trend from
High of $3.04 on March 11, 2013 to
Low of $0.79 on July 1, 2013
Last level of support/resistance at about $1.20 for 7 trading days to June 21.
Increase in volume since June 21 associated it would seem with the short selling of shares to 79 cents, on rumours that it was looking at a coal-asset purchase.
Share-price formed a double bottom, and has now rallied to just over the $1 barrier.
The RSI at 45 is technically not over-sold yet.

Conclusions

The share-price is in a down-trend on both the weekly and the daily charts.

Traders and investors wishing to buy in at this time should delay entry until the rally breaks resistance at $1.20.

Traders need to be wary of being caught short; those who are long should perhaps set their stop-loss position at about 75 cents as the next support level would likely be at 50 cents.

Disclaimer

Please note that this post is not a recommendation to buy or sell Linc Energy shares.