Sports Direct: an Example of Uncertainty

I bought a winter jacket in Sports Direct (SPD) this winter. I’m not sure what it has to do with sports. The same goes for my Dunlop wellies. I don’t have a horse, or even a Rangey (Range Rover). My idea of sport is taking on average people in debates and annihilating them. That and playing Top Trumps with prostitute’s cards out of West End phone boxes. So quite how Sports Direct is aptly named eludes me from a personal perspective. I can’t say I’ve noticed the sports equipment in there, although I imagine there is lots of it.

It is a company though that is another great example of uncertainty affecting market value. There’s been much controversy about how they treat the staff at the company. The CEO has even been summoned to appear before MPs to answer question on the subject. That’s got to make investors nervous. What if the whole escapade is based on exploiting workers? What if it is? This is what Brits want. As I so often say, we want to pretend all our actions have positive results, and yet gorge on the spoils of exploitation. In the equation: ‘cheap goods into expensive workers’ won’t go.

And so it seems curious that the government has seemingly chosen to make a scapegoat of what was until just recently a FTSE100 stock. Have some Old Etonian MPs had a bet that they can get Sports Direct founder Mike Ashley to emerge in public? After all, he has been described by the chap who compiles the Sunday Times List as “easily Britain’s answer to the late Howard Hughes”. I’m not sure if he saves all his bodily fluids for posterity, or has his chauffeur drive really slowly so as not to upset the delicate balance of his female conquests’ breasts like HH did. But there we are.

Maybe there are those that are still upset by his whistle-blowing on the price fixing of sports shirts by retailers in 2000. He was allegedly told by the founder of JJB Sports “there’s a club in the North, son, and you’re not part of it”. Well it seems he is persona non grata in the South now, too. I guess he cries all the way to the bank.

I wrote about Sports Direct in January. The chart was below various Moving Averages I’d plotted and the possibility of a 50% retracement upwards. So what’s happened since then? Well it’s met a congestion area and has moved along sideways. This could be what some people would call a Stage 1 Base. In other words a bottoming out is a prelude to a Stage 2 Rally. The idea is that all stocks are in stages 1 to 4. Base, rally, top and fall. It’s a little over-simplistic to go looking for, but this is a good example of a stock where it may be working. We’ve certainly seen a significant decline to what is quite possibly a base. As we move sideways into the cloud the cloud is falling. It’s always true that as a stock moves into the cloud sideways the cloud is closing in on the price action and making it easier to push across it, sometimes by barely doing more than going sideways.

So this is a one to watch at the moment. Remember that if is enters the cloud at the bottom, normally we can expect the price to cross the cloud. This gives a nice set of values for entry and stops. If, for example we entered the cloud at 405p then we might expect it to cross the cloud over a number of bars (weeks in this case). A break above the cloud is bullish, so the entry is as the price moves across the cloud, maybe on a little pullback. A break above the cloud and then your stop to breakeven is the cloud top. Initial stop is below the cloud. And with a helpful cloud depth here of around 10% of the price it’s a pretty attractive set-up. We’ve also seen a ‘U’ shaped bottom, which is quite bullish.

Here’s a picture I took at the weekend of the Hounslow Sports Direct store. No frills eh? That’s a   nationwide campaign of Stock Clearance, according to their PR company today. Hand daubed posters. No expense… err, that’s all.