House builder stock struggling to recover

By Graeme Dickson
Updated: 12:09 EDT, 6 October 2010

Keep an eye on house builder Taylor Wimpey (TW.) over the next few weeks as the stock struggles to recover, despite the uplift in general market sentiment.

The company has satisfied a number of key technical bear indicators, suggesting further downside in the near future.

On the positive side, the company last year had net assets of 47p a share, consideably above the current share price.

However its £630 million of net debt (against a market capitalisation of £908 million) will still cause concern in what appears to be a very precarious housing market in the UK, US and Spain.

Support for the stock is at 25p while resistance is at 32-33p.

What the chart above hides is where the stock has come from, which after taking into account all the fund raisings and consolidations over the last two years, was just 4.4p back in November 2008.

I'm not saying that the company is in trouble, given the decent strides it has made in the aftermath of the credit crunch, but house building sentiment is weak.

This is particularly true in Western economies and it is very difficult to swim against the tide: rival UK house builders have similar looking charts.

In my view, a close below 25p over a few days could lead to a move closer towards 20p.

Update

Barclays (BARC) – Suggested to sell at 309p, the stock closed yesterday at 308.8p. Nothing has changed with the idea so sit tight for now.

Ocado (OCDO) – Suggested to sell at 139.25p – the shares closed yesterday at 132.2p. Any spike should be added to given the company's gross over-valuation.

Vedanta (VED) – Suggested to sell at 1980 with a view that it was likely to spike upwards possibly up to 2500p, the shares closed yesterday at 2197p.

The company on the one hand is benefitting from the soaring commodity prices but on the other there are negative corporate developments which might hopefully bring this idea back into profit. A close above 2500p would invalidate this idea.

Victrex (VCT) – Suggested to sell at 1076p, the stock traded above the resistance of 1320p last Thursday and should be closed.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Alpha Terminal.