10 Market Direction: Dax Bullish Divergence Targets Back Towards 10,000
Barclays (BARC): Heading Below 150p
Something we have grown accustomed to since the beginning of the 2000s is the way that dips below 6,000 on the FTSE 100 are dips to buy into, with the typical pattern being a quick decline below this zone lasting only a few days or weeks at most. This lesson from history remains that the latest weakness we are seeing for blue chips is the value zone, and we should be welcoming it. However, there are a couple of difficulties as far as the price action of January to date is concerned, in the sense we have factors to grapple with that seem to be long standing / structural ones, rather than ones which could be addressed / cured by a quick shot of QE or the cutting of interest rates. It is also the case that many key sectors appear to be under something of a cloud, which may not be blown away any time soon. This is particularly the case as far as the mining and banking sectors, with the banks in focus at the moment. While it may be too early to suggest that they face at least a mild re-run of 2007–8, the extended and rounded tops on the daily charts of the likes of Barclays do give cause for concern. Indeed, the present situation for this stock implies that, provided there is no break back above the 10 day moving average at 186p, one could describe this stock as being in prime bear mode. But even below the stop loss – the 20 day moving average at 198p – we would be targeting the floor of a falling price channel at February at 150p over the next 1-2 months.
RBS (RBS): The Curse of Goodwin Continues
It is almost impossible to imagine how much of a disaster the bailout of RBS was, and perhaps even worse, the bonus-fuelled losses ever since. It would appear that there is absolutely no chance of this company getting back on its feet – at last in terms of profitability. The latest write down of yet more billions is supposed to put the past behind the company. The problem from a cynic’s perspective is that it is rather difficult to work out what the positive drivers for the future may be – especially in the wake of the “challenger” banks. The charting position shows a post summer decline which began in earnest with the loss of the 200 day moving average, then towards 350p. This was a classic trend changing signal, after which we have seen a slow but sure acceleration to the downside. The likelihood now is that the bears will remain in charge, at least until there is a test of the August 2014 price channel floor as low as 225p. In the meantime, any strength towards the 10 day moving average at 260p is regarded as a shorting opportunity, with only back above the 20 day moving average at 278p regarded as delaying / cancelling the downside scenario. The timeframe on the downside is seen as being as soon as the end of February, at the present rate of decline.
Bull Call
Imagination Technologies (IMG): Initial Target Towards 160p
It is perhaps rather unfortunate that we have never really had the thrill of a world-beating UK tech company listed on the stock market. Perhaps the nearest we have come to date is chip designer ARM Holdings (ARM), with of course the other high profile contender, Autonomy, the company that no one – especially Hewlett Packard – could quite work out what it did. However, a little further down the market cap scale, we have witnessed some interesting situations, if only from a technical perspective. One such candidate has been the smaller counterpart of ARM Holdings, Imagination Technologies, where there has been speculation that Pure Radio could be sold. The charting view is that we have the aftermath of a sharp January bear trap rebound from below former December at 117p, with the latest higher intraday swing low at 123p looking very appealing to the bull argument. The chances are now that, provided there is no end of day close back below 117p, and especially 123p, we could be treated to a significant upside move. This is anticipated to be as great as the target implied by a combination of the present position of the 50 day moving average at 157.49p and the December gap down top at 158p. Indeed, one could say, given the robustness of the latest rebound, that this zone is the “minimum” expected on the upside over the next 4-6 weeks for Imagination Technologies. The best 2-3 months target is a journey to the top of the 2014 price channel at 230p.
Bear Call
Allied Minds (ALM): Ongoing Breakdown
Ironically, even though the stock market looks to be in a great deal of pain, it is not that easy to find stocks where you feel there is a decent amount of “easy” downside. Perhaps the best candidates remain stocks where the valuations managed to get rather over exuberant? But at least as far as the situation at Allied Minds is concerned, we see a daily chart where there may already have been a long journey south, but the path lower could be significant even from present levels. This is said in the aftermath of the final September loss of the 200 day moving average at 500p plus at the time, and the way that all the near-term moving averages are currently falling. While there may still be an initial dead cat bounce given how the the RSI at 25 is so oversold, the message currently is that, provided there is no end of day close back above the 310p September floor for the stock, one would be looking to a July support line projection target of 150p as soon as the next 2-3 months. In the meantime any initial rally towards the 290p plus zone is regarded as a shorting opportunity.