Partridging

So far things are goings good with hwo with the breakout above $2 to a new 52 week high last week and it did this despite markets having a down week which makes it even more encouraging.  As I had noted in the prior post, I sensed something was brewing with the stock. There was relentless buying pressure that had never been present like this since I made my first purchase late last year. There was strong resistance at the 1.90 level as there were a couple of large sellers keeping a lid on the stock. About 1 million shares have been mopped up in 1.80-1.90 level which means that old, tired shareholders have been replaced by new ones creating a solid foundation for the stock to make at attack to higher levels. Now, I'm just talking about "market action" here. It's the fundamentals or "story" that drives such action and thus is more important. Last week, hwo's main customer in PNG, Oil Search Ltd, announced a partnership with French O&G giant S.A. Total to explore for gas in the hopes of creating an offshore LNG facility. This potentially bodes well for hwo as they have been doing the drilling for Oil Search in regards to their existing LNG project. I'm not sure if the stock brokeout because of this news or if it was just a coincidence. What may have contributed to the breakout was that an analyst at National Bank Securities initiated coverage last week with an outperform rating. This is the first time any analyst has covered the stock in 4 years. It's quite satisfying when see the "bigger players" start to take notice of a small cap stock you've been in and even more satisfying to know that you were one step ahead of them.

This latest move up makes me breathe a bit easier and sure, I'm getting excited (who wouldn't) but I'm still on edge. There's a decent chance the stock will pull back and consolidate a bit now that it made this little flurry to the upside especially if we continue to see weak markets. So far though, hwo has been trading independent of the market which is what I had hoped it would do. One of the things I need to make sure I don't do is sell prematurely. I don't have part of my position designated as trading because a) there's a high chance of positive news coming down the pipe shortly via q3 earnings and the Oil Search-S.A. Total partnership and b) the stock is still fundamentally undervalued. As per the wisdom of Partridge I'm going to be right and sit tight.  If you haven't read my post about Partridge I suggest you do....it has gotta be one of the top 3 most important post I ever made.

As far as the markets go, I'll admit that the action has been bearish, namely, that the market has been grinding down relentlessly, albeit modestly but big picture wise it's barely noticeable. Let's keep in mind that the market had quite a big run from the June lows and so a pause is normal, plus, the market is only down about 2.5% from the YTD high... but it sure doesn't feel that way does it? The financial media makes it feel as if it's a lot worse. I continue to notice how quick people are to embrace downside but they tend to be slow embracing upside and that's a LT bullish sign.  While further downside won't be surprising, I don't think we'll see more than an additional 2-3% more. The main reason why is because overall, ST sentiment wasn't as excessively bullish as it was just prior major corrections of recent years and some indicators are rapidly unwinding already and would probably reach the opposite side of the ledger if markets continue to go only modestly lower 

Everyone seems to be bracing for a weak Q3 earnings season but since expectations are already lowered it makes it tough for there to be major downside surprises. Remember the motto of this blog. If we do get such surprises then that would be a red flag of an major turning point in the cycle. 

So for me, I'm staying the course. I will stick with my oversized position in hwo and my cash reserve. Given that hwo has been dancing to its own tune and given that I don't believe there's high chance of serious downside in the intermediate term I will stay unhedged. However, out of discipline, I will not be making any new additions until I have good reason to believe the correction has ran its course unless I see a really, really compelling opportunity similar to that of hwo.