Zak Mir – Out of Sorts Outsourcers?

The debacle surrounding issues like the Olympics security fiasco and the electronic tagging of sometimes dead prisoners has highlighted how laughable at least one area of Government procurement is, and arguably why Big Government in general is such a disaster! In fact, much of the blame really stems from the big divide with respect to the public and private sectors. Those in the former really regard their job as a cushy number, or are simply working in the public sector on the basis that they would be kicked out if they were in a strict performance based position!!

Perhaps this would not matter so much if the poor old taxpayer was not already suffering due to the still lingering after effects of the financial crisis? Or, where the companies are concerned at least if there was some genuine tendering for the contracts involved! The question now though in the wake of all the controversy surrounding the so called “outsourcers” is whether we are actually looking at a buying opportunity, or whether the scandals and the fines that have circled these companies will ensure that traders remain too scared to go long?

Going with the stock which has been perhaps most in focus of late – Serco (SRP) and we have the potential for a significant change in looking at the recent price action. This is said on the basis of the break back above the top of the November gap at 504p and also coming soon after the brief January 10^th dive below 500p. The technical view here is that the decline last week to 482p was the final flush out for the bulls, and an enticement to go short at the bottom for the bears. The position in the wake of this fakeout / false sell at the top of the gap is that there is likely to be a bear squeeze here at Serco now with many traders seemingly wishing to focus on the SFO issues rather than the price action. Still, at least from a charting perspective, it can be said that while there is no end of day close back below the top of the gap at 504p that this situation has now “flipped” to the upside, with a possible target here as high as the top of a rising October price channel at 650p on a 1-2 month timeframe. The more down to earth target here would be the 200 day moving average at 566p, perhaps to be hit as soon as the end of this month.

As far as the nightmare scenario is concerned then we alight upon G4S (GFS). Here it could be said that some may take the view that despite all the mishaps at the security firm that the shares have actually been surprisingly resilient. Such an idea is backed up as far as the daily chart configuration is concerned by a triple failed gap fill since October, with the floor of the gap running at 242p. The likelihood now in the wake of this ultra bullish charting signal is that there will be continued follow through to the upside. This idea is additionally helped along by the presence of a rising trend channel from August based at 247p as well as what looks to be a pretty comprehensive end of day close above the still falling 200 day moving average at 253p. Ideally, while the shares remain above the 200 day line we can expect quite brisk progress towards the 2013 price channel top at 273p. The timeframe on such a move is seen as being the next 2-4 weeks at the most.