2014 Blue Chip Crackers

Just to keep the festive mood going a little longer it seems appropriate to look at some of the year’s better stock market performers from the FTSE 100 and see whether they did reveal themselves in a charting way ahead of their respective bull runs. Perhaps the best way forward here is first to look at the winner – Dixons Carphone (DC.) – especially as here we have the added interest in the way that the shares were new to the market following a merger. The big technical plus points here were the bounces seen in May and July just above the 200 day moving average then in the immediate sub 300p zone. It goes without saying that when a stock or market finds support without needing to refer to the 200 day line, this is a special show of strength. You may very well ask how to capture such signals. The answer is that usually they are bear trap and so one combines the proximity of the 200 day line with the trap, using an end of day close back below the 200 day moving average as the stop loss.

Shire Pharma (SHP) showed how this worked in April when there was a rebound from above the 200 day line, after a second low at 2,838p versus the original support at 2,854p. This preceded a massive bull run on M&A speculation, which was ultimately blown out of the water. The aftermath of the flush out was the more conventional bear trap rebound from below the 200 day moving average in October. The recovery of the 200 day line soon after was effectively a continuation buy signal, one which is in force to this day.

It is not that difficult to argue that for those who are interested in technical analysis, but do not wish to get too bogged down in rocket science, just going by the 200 day line is not a bad strategy. Another winner for 2015, Ashtead (AHT) backs such an idea in the sense that we had a couple of episodes earlier this year when this key technical feature came into play. For instance, in May there was a close approach to the 200 day line, followed by a sharp rebound. The technical buy signal here was best triggered via an end of day close back above the former April floor at 813p, something which completed the bear trap rebound of May. October gave fans of Ashtead another chance to get on the bandwagon in the wake of a one day end of day close back below the 200 day line. The end of day close back above this feature became the buy signal, with the stop loss an end of day close back below the line. While stocks and markets can conspire to trigger such a stop loss – and then go the way we wanted them to go – in this case, and surprisingly often a simple trading method works best.

Completing today’s “lesson” we have London Stock Exchange (LSE). This stock combines what has been illustrated in the examples above. For instance, May served up a bear trap low versus April’s at 1,622p, above the 200 day moving average. The end of day close back above the 200 day line gave us the continuation signal. Then for August and October there were brief intraday bear traps from just below the 200 day moving average then heading from 1,700p up to 1,800p. The best thing about such signals is that even if the dip you choose to buy into becomes the end of the rally, the risk / reward and clear money management points mean that the trend can really be your friend.