One of the more irksome aspects of the markets is when a stock or market is near to breaking out, everyone is waiting for a level to be cleared, and then there is a dance around resistance for an extended period. We are not quite yet in this kind of game playing yet, but shares of Overstock.com have poked just above the psychological $20 level a couple of times in the recent past.
Looking at the daily chart and it can be seen how there has already been a clearance of the all important 200 day moving average at $16.69, so that really the bulls are allegedly relatively safe while this holds. However, a weekly close today should really be enough to begin an acceleration to the upside, with the best case scenario a possible move as high as the top of a broadening December triangle formation currently pointing to a target at $34 on a three months timeframe perspective.
As expected, the pharma area has been one of the strongest areas of the stock market for 2019, and as the biotechnology behind these firms feels like it is advancing 5 years every year, one would expect this to continue to be the case for quite some time.
The stock of the moment comes in the form of Alexion Pharma which yesterday unveiled a consensus beating Q2 update, and raised guidance for 2019. To add to the excitement though, we have Spanish publication Intereconomia suggesting that Roche and Amgen are the two favoured contenders to takeover Alexion over the next few months, in a deal that involves Bank of America- Merrill Lynch.
The good thing about this situation, as is very often in the best stock setups, is the way that with the fundamentals of the alleged target company set fair – earnings per share up by over a quarter, even with an extended wait or no deal at all, Alexion represents a company which is unlikely to disappoint the bulls.
Looking at the charting situation, we see the shares sandwiched between a January uptrend line at $116 and the 50 day moving average at just under $124. The expectation would be for a break above the 50 day line next – with cautious traders waiting for this feature to be broken before targeting a retest of April $140 peaks.
The usual rule with perennial underperformers is to leave well alone. It is almost impossible to call the bottom, and even if you do, the process can take so long as to barely be worthwhile. However, at least in the short term it could be that “Dogs” Drax, ITV and Marks & Spencer could be due a share price revival. What should be remembered however, is that from a fundamental perspective all three stocks are in sectors in “long goodbye” mode, with only the remote hope of a takeover when their stock price becomes so cheap delivering the possibility of putting these companies out of their misery.
In the case of Drax, the market yesterday appeared to take cheer in the rise in quarterly earnings, and in the aftermath of the Iberdrola deal. The question is whether all of this will end the extended decline in the shares so far this year. Bulls will take heart from the gap higher through the 50 day moving average at 290p. Such gap signals are usually very reliable and at least while above the 50 day line we can look to an intermediate rally towards the January resistance line at 340p.
It is a sad indictment of the ongoing decline of the space which broadcaster has created for itself, that despite blockbusters such as Downton Abbey, and the even more mannered Love Island, the share price of ITV has continued to decline. But like Drax described above, we have been treated to a chart gap higher through the 50 day moving average, in this case at 109p. While above this feature a push back towards the 120p’s is expected, possibly as high as the zone of the 200 day moving average at 129p over the next 1-2 months.
It would be entirely disappointing if the £1m M&S has paid to the irksome Holly Willoughy was actually paying off as far as its summer range. One would hope that there are other factors at play as far as the falling wedge break higher on the daily chart. Whatever the case may be a continued rebound to the 50 day moving average at 220p would appear to be the minimum on the upside, with the possibility while above the 203p July floor we see a move to the June peak at 232p over the next month.
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It is not often that the newspapers offer what appears to be a slam dunk story regarding a stock or a market, or in fact, anything else. However, The Telegraph’s Hedge Funds Take A £1.5bn Bet Against Premier Inn Owner Whitbread does seem to fit the bill at first glance. After all, who would want to bet against a “Flash Boys” hedge fund, as well as RBC and Short Capital warning against the share price falling below the £50 share buyback level. When you add in Elliott reducing its stake to below 5%, and it would appear only a masochist would remain long, and only a coward would not go short.
Perhaps the most interesting point here is the way that The Telegraph has published such a punchy story, and one that is all stacked up for traders – maybe too stacked up? The other point to note is the way that until Saturday’s article Whitbread shares appeared ultra strong, as has its fundamental history for much of the past few years. This culminated in the group flogging Costa Coffee to Coca Cola for £3.9bn – arguably ahead of the Peak Coffee we have hit in 2019. For instance, it appears Starbucks is dying on the vine in parts of the UK.
Therefore, as is sometimes the case it may be worth letting the chart be the arbitrator of possible action. The stock has been very loyal to an uptrend line from April last year on the daily chart at 4,600p – just below the present share price. But it may be wise to wait and see if this level is clearly and cleanly broken over the next few days before assuming that we have not been treated to a bear trap.
While there may not have quite been 57 varieties of disaster as far as 3G and Warren Buffett’s experience with Kraft Heinz, the actual number may not be that far off. Clearly, schadenfreude plays a part for some observers of this situation. But perhaps the key issue here is how is this situation going to play out?
The answer may be that given the way that fundamental investors simply regard a cheaper share price as offering more value than an expensive one, doubling down here at $30 (or lower) may take away the pain of having overpaid by a significant amount. Given the shadow of the SEC, and the possibility of even more write downs, this situation appears fluid to put it politely. The final issue for Buffett / 3G is that Kraft Heinz’s woes are so substantial, being “back seat driver” shareholders may simply not be enough to stem the spiral of decline.
But in one way, it is not the fundamental position currently which is of most interest. The daily chart showed what appeared to be a gap down overshoot move below $30 in May, and then gapped back up in June. This set up is called an Island Reversal and is ironically one of the strongest technical formations. A break of the February resistance line at $31.50 would back the idea that a technical rally is on its way. But at least while Kraft Heinz remains above the June $28.95 gap floor, we can regard this stock as an unlikely recovery situation for a move back towards the 200 day moving average now near $40 on a 3-4 months timeframe.
There has been a welcome recovery in shares of ailing carrier Norwegian, from near 30 NOK to over 45 NOK. The bulk of the rally was based on a “too big to fail” / M&A routine, for the debt ridden group.
Indeed, it wax surprising that the stock price hardly blinked when IAG walked away from the table last week. Clearly, there have been hopes that another party might step up to the plate.
However, the stock is currently priced with a takeover premium. If, as seems likely, Norwegian has to fly solo with no other bidders visible from the flight deck, there would appear to be an over valuation at current levels.
A return to the recent chart gap sub 40 NOK may be anticipated at the very least. It would be surprising if the old February floor at 47.73 NOK is cleared near term.
Of course, these days “Sin” Stocks are part of the thought crime / PC straightjacket nightmare we are living in, of which George Orwell’s dystopian offering “1984” highlighted so well.
On this basis it is almost worth having the stocks in one’s portfolio as a protest vote, even if you do not smoke. Clearly, Imperial Brands has realised the pressure it is under, even though as we know now, sugar has killed many more people than tobacco.
Following on the theme, the tobacco giant has move to sugar coat its fundamentals with a revamped dividend policy / £200m share buyback. This comes hot on the heels of a buy note from Liberum on July 4, although strangely enough the shares gapped up the previous day. The chart gap currently leaves an Island Reversal and W shaped rebound on the daily chart, something which may encourage the bulls. While the recent torrid history of the stock may mean that it is wise to wait for the 50 day moving average at 2,059p to be broken before calling a sustained rally, the shares look to be in the mood for a retest of May resistance towards 2,200p even if the recovery fades after that. The floor of the gap at 1,943p will be key in coming days as likely support.