Far East Energy: Seeing the Light

Feb. 8.07 | About: Far East (FEECQ)

Investors in Far East Energy Corporation (FEEC) have been highly disappointed by the stock performance in the past ten or so months. The stock has lost roughly two thirds of its value from its April 3rd 2006 high.

However, there is evidence that the stock has bottomed out.

On February 2nd, the stock closed above the upper Bollinger Band for the first time in ten months. And this was also only the second time since last August the stock closed above its 50 day EMA.

The breakout followed a tightened band and was followed by two days of consolidation on light volume. This is a typical example of downtrend losing steam after a bottom is found.

FEEC-1y-daily-020607

Meanwhile on the weekly chart, the lower Bollinger Band has indicated a bottom formation for the past two months or so, with last week closing above the central 13-week EMA line also for the first time in 10 months. The intermediate term MACD is beginning to show a positive crossover since the carnage began in last April.

FEEC-3y-wkly-020607

Is this light at the end of the tunnel? Quite possible. Barring major good news, however, do not expect to see a fast and violent reversal to the upside. For a damage that sheds stock value by two thirds, it will take quite some time for the wound to heal. Expect to see price oscillation in the range $0.75 to $1.20 for sometime to come. History often repeats itself. If you look to the left side of the chart, after the 2004 carnage hit bottom it took roughly 10 months to stage a full force reversal. If the cycle repeats itself this time the huge upside would start at the turn of the year. For those who believe in market as an anticipative mechanism of something fundamental, this could be prognosis that the company begins to generate revenue, achieve cost reduction, increase operational efficiency, or things alike. When that happens, the stock will never revisit the current level.

Out of absence of major exciting news, allow me to mention that board members Donald Juckett and Thomas Williams together bought 25,600 shares at $0.82/$0.83 per share on December 27th. Then the five non-employee board members were granted 360,000 shares (4,000 shares each member, plus 160,000 extra shares for new director C.P. Chiang) of option at $0.765/share on January 25th. Both events can be interpreted as the board's belief that the stock has significant upside potential. And as frustrated as we all are, it is unfair to leave out the progresses across all three PSCs (two new vertical wells in Yunnan, one new horizontal well in Shouyang and the preparation in Qinnan that will lead to one horizontal well or equivalent). These could all be the initial fundamental triggers underlying this possible bottom formation.

For the frustrated investor, at this junction I would advise you to be patient. At least the management has taken steps to better shareholder communication, the upcoming 2/14 webcast with investor Q&A being an example. The exploration period extension has its own positives, see my other post. The fact that they can work out the two-year extension also proved they are capable of working constructively with CUCBM. And I can assure you that McElwrath has a deep understanding of China, from energy policy to the Chinese way of doing business. The only concern I have is that he could be too much used to the comfort of a slow-paced government post. He and his gang really need to have a road map and be able to execute with 21st century China speed.

Disclosure: Author is long FEEC.