Having been a chartist for the best part of 30 years, and having applied this particular art to the markets in public for 20 years, what works and what does not work in terms of predicting (or attempting to predict) price action stands out more and more. In particular, the so-called “Falling Wedge.”
Perhaps the best example of the genre amongst the more followed stocks of the moment comes in the form of Stobart Group which broke out of its May Falling Wedge on Friday accompanied by rising volume. One would expect at least a move to the 50 day moving average at 122p, especially while the broken May resistance line at 105p provides support.
WH Smith is also demonstrating a Falling Wedge formation. But the difference in this case is that we still await the breakout at 1,983p, also the level of the 200 day moving average. What makes this especially attractive is the gap higher for the stock on Friday – gaps ahead of wedge breaks are normally a sign of momentum and a cue for aggressive traders to go long ahead of the break. The obvious target here would be April resistance at 2,200p plus while the recent 1,900p support zone holds.
Finally, we have Versarien, which like WH Smith, gapped up within its wedge on Friday – suggesting strong momentum. Above its April resistance line at 107p could lead the stock back to main 2019 resistance at 140p plus. Only back below the gap at 98p would suggest that the stock was set to disappoint.
It has been the case in recent years that outsourcers like Serco should have been avoided like the plague, with Capita being the particular disaster in this respect. However, it may be that Serco, with its 50,000 employees covering sectors from defence to immigration is so integrated into the State that it is too big to fail. Indeed, it may have a license to print money.
True, under a Marxist Labour Government one might argue that that the services that Serco provides should be nationalised, but of course, it is likely that the Deep State will prevent such a nightmare scenario. It has, of course, done well in this respect so far.
Not surprisingly, this company which is so intertwined with Government would not be expected to be run by just any old person. We have Rupert Soames, grandson of Sir Winston Churchill as CEO. So this really is an Establishment outpost.
Even better, after five years of decline the group has been able to boast a 20 percent rise in interim profits, a forecast of double digit growth, and so far spurned offers for Babcock.
While all of this witnesses shares of Serco at the top of the post 2015 range near 150p, the company could have enough momentum behind it to push back up to 4 year resistance at 180p. The stop loss on such an idea would be 50 day moving average at 129p. Nevertheless, it does appear that there is enough momentum behind the stock to deliver a breakout, with or without Babcock.
Even through all the incessant stock market noise, it is clear that there is one area which is really in breakthrough mode as we get to the end of the 2010s: biotechnology. While for some we should have got to this stage earlier, successfully treating types of cancer and immune diseases via companies such as Tiziana Life Science is very much achievable.
Nevertheless, one should probably contrast the human aspect of treating Crohn’s Disease, Liver cancer or MS, as Tiziana is on course to do via its pipeline, with the way that the shares of this company are idling in the lower segment of a 40p – 250p range since 2015. So far, the stock market in its infinite wisdom has decided that very little of the progress made in recent years should be fed into the market cap. As is often the case the focus is on a company delivering results. Given the multiple treatments Tiziana is well on the way to developing, the waiting game should be close to its conclusion.
In the meantime from a charting perspective, we see the stock trading in the aftermath of a large and unfilled gap rebound through the 50 day moving average at the beginning of April. Interestingly enough, last July witnessed a similar gap through the 50 day line, and was followed by a 100p rally. One would expect history to repeat itself on any near term break of the 2018 resistance line at 77p.
It is perhaps a measure of the unpopularity of the stock since it came to market last summer that even with the recent near vertical rise of the cryptocurrencies over the past three months, we have not seen a real jump in the stock. It remains stubbornly below the 16p zone of the IPO day. Even the Cadbury’s Smash robot lookalike has not helped so far.
However, such mismatches in price and sentiment offer opportunity, with the daily chart underlying what this is. For instance, we have been looking at a classic saucer bottom, with the recent consolidation for the stock taking the form of the handle on a Cup & Handle formation . All of this means that with the momentum of two gaps to the upside in as many months, a break of recent 8p resistance – possibly via another gap, could lead the stock much higher. The favoured destination at this stage is the top of a rising trend channel drawn from last August heading for 15p, a 1-2 months target. At this stage only back below this month’s 5.7p floor would really upside the upside argument.
The position as far as Deutsche Telekom’s 12% stake in BT Group, which it was free to add to at the beginning of this year, seems to be a case of one plus one equalling three. This is particularly the case given the share price slide we have seen for much of 2019, and the recent dip below 200p.
It should and perhaps still could be the case that DT finally decides to double down on its stake bought at over double the present share price, and consolidate its position as a pivotal European telco as we enter the age of 5G communications. Indeed, one can say, if it does not seek to make M&A moves on BT, it will continue to be sitting on dead money.
Even with all the recent angst surrounding BT – the Italian scandal, competition issues with the regulator, and dividend fears, the shares do appear to be in the value zone, if not an area for contrarians.
From a technical perspective, in the near term the situation looks to be all about the former May 2018 support at 201p. While above this the stock is in a bear trap position, so that while this holds former March to May resistance around 230p looks to be the target for the stock.
It is supposed to be the case that profits warnings come in threes – like London buses used to do, so this would mean we are still awaiting another such hit for Low & Bonar. However, for those who can ignore this rule, and take masochistic pleasure in attempting to catch a falling knife, this could be a situation to investigate from a technical analysis perspective.
The reason being that we are looking at a potential (bullish) falling wedge breakout, one which is backed by a triple bounce off a RSI support line from April. One could say that while the chances of a sustained rebound here may be slim, we are looking at a situation where a proverbial dead cat bounce could be forthcoming. Those who wish to have fresh technical buying trigger would only be looking for an end of day close above the wedge’s resistance line at 8.5p in order to then target a rally to the 50 day moving average zone at 12.66p. Given that this is a falling knife – a stop loss just below today’s 6.56p current floor seems wise.
On a fundamental note perhaps a new CEO and the recent disposal announcement will at least temporarily stabilise sentiment towards this battered company.
A recent run of good form for shares of the UK drugs giant reminds us that that five years after the current CEO managed to keep his job by warding off a takeover, the company still struggles to achieve the true critical mass of an international player. At the same time, issues such as opioids, dry pipelines and generic competition are now in focus. This means that the very plus points Pascal Soriot argued previously are the reasons Astra should remain independent are the very reasons now that his company should provide rich pickings for a third party. Anyone who would like to read a great puff piece on the matter should read the recent Sky News article.
But whether or not this happens in the near term, we have the stock well placed within a rising trend channel on the daily chart in place since August. The beginning of this month witnessed a gap reversal flush out, presumably to remove weak bulls, so much so that one would not now expect any weakness back below the 50 day moving average at 5,943p. While above this the upside at the top of the channel at 6,800p should beckon over the next few weeks.
It has not been a good time of late for drugs companies of all shapes and sizes, but if anything, the smaller specialist players have just kept themselves as the favoured companies in the space.
However, for Teva, it would appear it has been hit on both sides of the argument, not big enough to have critical mass on the international stage, and so far not aggressive enough to reposition its business. When you add in its issues in terms of the opioid witch hunt in the US, and reports of hedge fund shorting, and it is no surprise that the stock is at the lows. It gets worse, as Barclays, with its latest review of generic drugs makers has decided that Teva is rated Underweight, and Mylan (MYL) deserves Overweight – an interesting spread trade.
Against such a background one would hope that a value investor / contrarian might look at Teva in a sympathetic light. Luckily, for Teva there is already someone in place, one of the best value investors around: Warren Buffett.
Recent share price weakness could mean that he increases his stake from the latest doubling down of 4.8%. Given that his Berkshire Hathaway vehicle has already taken a $300m plus loss here it may be suggested it is “committed” to this situation and may have to become even more so.
This is especially so given that we are looking at a company which is a flagship group in its native Israel, and really cannot be allowed to fail.
From a charting perspective, the June 2018 support line at $8 is certainly the level to be held, a break of which could see losses accelerate. Ideally, there will at least be a temporary positive reaction in this zone.
Given the way that according to Medidata’s Twitter feed “the total amount of #healthdata in the world is expected to soar to 2,314 exabytes, 15 times what it was in 2013” one would have thought that medical science might have cured cancer, obesity, wrinkles and even baldness by now.
Clearly, number crunching works on the “garbage in garbage out” rule in some aspects of data analysis. However, it is clear that this company is at the heart of a booming area, effectively providing its picks and shovels.
The daily chart features the large, and as yet unfilled April gap to the upside, with the likely support coming in towards the 50 day moving average now at $86.49. The likelihood at this stage is that at least while above the 50-day line the upside here could be as great as the top of October’s rising trend channel at $105 over the next 1-2 months.
It is just as well that the look here at Allied Minds is essentially a technical one. This is because one could probably write a book regarding the recent history of the group, especially given the way that former star fund manager Neil Woodford’s “investment” vehicle, Woodford Patient Capital Trust has near to 20% of the technology incubator.
However, the latest bonus cutting scheme and the new Co-CEO arrangement look as though they will trigger a long-awaited lasting turnaround for the stock, which is still trading some 30% under NAV despite the recent share price recovery.
What can be seen on the daily chart of late is the clean break above the 200-day moving average last month at 63p, the testing of old 70p resistance as new support this month, and the latest bull flag break at 80p. The view now is that at least while above 70p – and most likely above 80p predominantly, the upside here could be as great as the top of a rising October trend channel at 110p – towards the NAV level. The timeframe is as soon as the next 2-3 months.