Zakmir.com

One of the best and sometimes the worst things about using the charts to trade the markets is that you are effectively shutting down all the fundamentals and the newsflow. A problem also arises when the market gets the fundamentals wrong, as it did with the Pound and at the time of the Brexit vote. Sterling rallied to $1.50 temporarily on the basis that Remain had won – and perhaps because many in the market wanted Remain to win. Since then the rough rule has been more Brexit – sell the Pound, more Remain, buy the Pound.

This pattern has been well followed over the past three years: arguably until now. The impression given in the past couple of weeks is Brexit Deal – buy the Pound, No Deal – sell the Pound. However, the ferocity of the recent rise through the trend changing 200-day moving average is surprising given the way that previously the currency was rocketing on Remain. It is also the case that the “smart money” may be aware that after over 30 years of efforts to keep the UK in Europe, including deposing Mrs Thatcher, it is almost inconceivable that Parliament – which now rules the Government / Executive, is not going to vote in favour of any deal unless it is to Remain. Therefore, conspiracy theorists may suggest that we are not witnessing a Brexit Deal rally, but a Remain one.

The idea is given further ammunition from the chart and the latest break above the 200 day moving average and a resistance line break at $1.2710 from March. The implication of an end of day close above these two chart features is that we shall be treated to an eventual $1.40 plus target at the top of a December broadening triangle over say, the next 1-2 months. But remember if the chart target is correct, even $1.30 plus would have to be delivered in a Remain scenario. One would imagine it is still the case that if a No Deal Brexit was really delivered as Bluffing Boris has been suggesting, Pound / Dollar would be back at its lows near $1.20 quicker than you can say Jean-Claude Junker.

Today’s announcement of a £3bn agreed takeover of cybersecurity firm Sophos has been a shot in the arm for a sub-sector of the stock market which has been relatively under-appreciated given the almost daily news regarding hacking and other cyber nasties.

It has also underlined the value of what cybersecurity solutions group Shearwater has been building of late. It is also timely given that the Sophos announcement comes in the wake of last week’s news that Shearwater’s subsidiary Brookcourt Solutions has won a £8.5m contract with a FTSE 100 telecommunications group.

Indeed, it would appear that after a slow reaction in the wake of Thursday’s news, shares of Shearwater are starting to respond. Indeed, they have pushed towards the main resistance line on the daily chart from May at 198p. An end of day / weekly close this week should be enough to snap the 5 month downtrend in the stock and leave the way open for a rally as high as the main 2019 resistance 300p plus. This could happen as soon as the end of the year, especially while there is no break below the late September peak at 180p.

Although it is supposed to be the case that the more liquid stocks are best suited to predictive technical analysis, it can be seen from the daily chart of power station group Drax that this is not necessarily the case. Indeed, in the recent past there have been a couple of recovery attempts which came to nothing.

However, the latest rebound which has taken the shares back to the 50 day moving average at 282p does seem to have some credibility in terms of being a potential trigger to a lasting turnaround.

This is said on the basis of the sharp bear trap from below the June floor at 260p, and the bullish divergence in the RSI window. All of this goes to suggest that if we are treated to a weekly close today above the 50 day line, we should be treated to a follow on move towards the top of a broadening triangle drawn from June at 340p. While this may sound optimistic, even if the extended bear run continues, an intermediate rally to such levels is possible as it would only be up to the 200 day moving average and take the shares back to where they were in May.

Disclaimer
Zakmir.com is a purely journalistic website – Zak Mir is a member of the National Union of Journalists. There is no intention here of providing financial advice. It is recommended you seek an independent professional opinion before deciding whether or not to take any action with regard to anything written here.

It would appear that at least as far as ailing online estate agent, Purplebricks is concerned, German media group Axel Springer having built up a 26.6% stake to date is akin to the backing Mike Ashley has served up for the High Street.

 

The situation has been complicated by the presence of kiss of death fund manager Neil Woodford also being on the shareholder register. What is interesting about the latest surge in the Purplebricks share price is whether it is off the back of Axel Springer topping up its shareholding from 26.6% towards the 29.9% level at which it would be obliged to make a full offer for the company. In some ways it would be better if Woodford has offloaded some of his stock to the German group, given his ongoing need to raise cash.

At least as far as the daily chart perspective is concerned, the price action today is significant in that there has been a clean break of the 200 day moving average at 133p. Also important is the way that since July the stock has found support at and above its 50 day moving average now at 116p – even on dips. Both these features suggest rare technical strength, something which seems at odds with the company’s fundamentals, but in line with the idea that Axel Springer may pounce on the UK group, or at least be topping up its holding. The charting implication is that while there is no end of day close back below the 200 day line the upside here for the stock over the next 4-6 weeks could be as great as 180p at the top of a rising trend channel from February.

Although when the mainstream press gets on the back of a company as being a potential M&A situation it is the kiss of death, in the case of William Hill, it may be the case that at least following technical rules we have a stock which is genuinely in play. The reason for the relative enthusiasm stems from this week’s flourish through the 200-day moving average, on the daily chart at 160p.

It also helps that the shares have made a clean clearance of the former April resistance at 169p. At least while above this on an end of day close basis we have the makings of an interim rally for the shares. The favoured destination currently is for a push towards the top of a rising trend channel from November, with its resistance line projection pointing towards 210p. This makes for a 1-2 months timeframe target at least while 169p is held.

 

From a fundamental perspective there are a couple of things to hang your hat on should there be no corporate moves on William Hill. For instance, we are being told of an “aggressive” expansion into the U.S. and at least the pain associated with FOBT’s as reported in this month’s H1 results was no worse than expected. Indeed, it could very well be that it is the Stateside action here that means this perennial dog finally has its M&A day, as is being suggested by some.

It can be said without fear of contradiction, that whereas this really has been the year of the drugs sector, Akorn has not joined the party. This observation is derived at least in terms of its share price, if not its valuation, which at current levels appears to be in the bargain basement area. Indeed, looking at the assets of the firm, the sum of parts really does hint at something well north of where we are now.

However, going purely by the near term price action, there is plenty for technicians to chew on currently. We have been treated to a sharp bear trap rebound from below the former 2019 intraday low of $2.64 and the $2.50. This is the type of final flush out / exhaustion move that one sees ahead of corporate action – although normally there is a delay before such events happen.

In the case of Akorn though, one would expect to see a stock price reaction back towards the area of the 50 day and 200 day moving averages near $4, similar to the spike towards the 50 day line at the beginning of August. Only a fresh probe back below $2.50 would really hint that the breakdown in the stock is set to continue and this is not expected for now.

 

There are certain stock market adages that are useful and reliable, in an area which is traditionally a minefield even at the best of times. For instance, “profits warning come in threes”, following significant director share buying, and in the case of Burford, avoiding companies where related parties are on the board.

In the case of Sainsbury, we are reminded of how the share price tends to rally after a CEO steps down / is sacked. The only twist on this occasion is that while the stock appears to be jumping the gun as far as Mike Coupe’s departure. While it has been reported that the grocer is scouting around for a replacement – something it is alleged is always the responsible thing to do – so far market speculation has been denied.

Clearly, once the CMA blocked the merger with Asda – and did its habitual business prevention role, it was always going to be difficult for Coupe to stay in his job. Without such a deal Sainsbury was doomed to continue the slow death experience that it and many of its non discount grocers have experienced in recent years.

What is interesting from a price action perspective is the way that the shares have bounced reasonably well off the floor of a bullish falling wedge pattern on the daily chart, and that as little as a clearance of the 50 day moving average at 195p could unleash a sizeable intermediate rally.  A return to the 210p – 220p area does not seem unreasonable to expect.

This may or may not coincide with the departure of Mr Coupe. But it may be triggered on a fundamental basis on hopes that a new approach at the struggling supermarket could be on its way.

Although in most areas there is a fierce battle over whether the EU is a good thing or not, in at least one particular space, the ESMA rules regarding spreadbetting and retail “gamblers” has to be regarded as something the City of London really did not need. Not that anyone would dare say this openly. As far as today’s update from Plus500 is concerned, the obvious effect of halved profits would appear to be an obvious knock on effect of last August’s new trading rules. But what is interesting is the way the group appears to have bounced back, adding 19% more customers during 2019. This is clearly impressive and suggests that the company is able to offer more than some of its competitors.

Nevertheless, unless volatility in the markets rises – which going into Brexit / Trade War escalation it could, Plus500 remains a tricky trade share price wise. The jump we have seen today may have been as much to do with the promised share buyback of up to $50m, something which should scare off all but the most ardent of its shorters. What we have seen so far today is a fill of the April gap to the downside at 695p, with the high of the day at 697p. This zone is still technically the area to short the stock up to. However, a break of 700p could target the area up to the 200 day moving average currently at 941p. Therefore, in Plus500 we have a trading opportunity as intriguing as the company itself.

Disclaimer
Zakmir.com is a purely journalistic website – Zak Mir is a member of the National Union of Journalists. There is no intention here of providing financial advice. It is recommended you seek an independent professional opinion before deciding whether or not to take any action with regard to anything written here.