Majestic Wines

It’s been a tough time for Majestic Wines plc over the last year or two it seems. They have increased sales revenue but managed to post lower profits. Of course profits are dependent on the company’s attitude to future risk in terms of contingent liabilities and reserves, which are basically potential profits sitting on the balance sheet, undeclared and undistributed.

They bought Naked Wines and that might have stretched them a bit. I can’t see that trading conditions are really that tough out there, certainly not compared to the last few years. Easier if anything I would have thought. I wrote about pubs and brewing the other day and how that is looking good. One would imagine drinking wine at home is a good business to be selling into. Given the number of pubs have diminished, it means more people must be drinking at home. However, it’s possible the Majestic brand is just in need of reinvigorating. In any case, there’s no shortage of cash anywhere there’s a Carluccio’s. “Focaccia yourself?”

All of which leads to an interesting chart. I’ve produced an image of the weekly candlestick chart here. You can see the support level from 2011 in blue. They were going great guns up until the end of 2013, when a significant trade-off took hold. This brought it back down to challenge the support level from 2011. What is interesting here is that the first and second touches are certainly bouncing off that support level. But it’s the third bounce that is encouraging. It falls convincingly through the support level, down to 280, whereas the support is at around 312. Look at that volatility too, again and again through 2014. There are weeks where the price moves more than 20% of the price level during a week of trading. I like this bounce at ‘3’ because having fallen through the support level intra-week, it recovers to close at the top of the candle, indicating strength, and that support still exists at around 312. This is a big deal because you’d normally expect failure on a third attempt.

Since then we’ve seen a confident move up into the Ichimoku cloud. Now many of you are probably not that familiar with Ichimoku clouds. I read up about them 8 years ago in what was, at the time, the only book on them in English that I could find. It was written by someone who had worked in Japan and so it was, ironically, something like Chinese Whispers about Ichimoku Clouds half understood in Japanese and expressed in English. Basically, they are a complicated but useful expression of swing levels, in other words S/R.

What you need to know is that the cloud top and bottom offer S/R. If a price enters the cloud then it more often travels to the other side – not necessarily quickly and given the cloud levels are constantly changing it can exit the cloud top at a price lower than it entered at the bottom, and vice versa. What we’ve seen here is that it has travelled across the cloud and met resistance at the cloud top. But given that cloud top is falling away over the next few months this will make it less and less challenging to break above the cloud. (Who said you can’t read the right side of a chart? They’re wrong. Damn lefties!)
So with the convincing bounce from the 312 support level, and a relatively helpful cloud top, if we see it break above then we should expect to see a return to 600 from the present level of around 450.