TA Q&A : Ask the technical analyst
Date: Saturday 21 Jun 2014
For some investors, of a more conservative ilk, technical analysis is considered to be extremely useful when trying to ‘time’ their investments. If it is often said that fundamentals should dictate when one buys or sells a financial security, it is then the task of technical analysis to help guide on deciding the exact moment to sell or buy that security.
From next Monday onwards we invite our readers to send in their queries regarding the technical outlook for shares, any of the main equity benchmarks or specific currency pairs, which we will then respond to inside this section.
Please forward your queries to londonnews@webfg.com .
Let's begin ...
Tuesday July 1st: Senior
Reader: Could you share your thoughts on Senior (SNR)? I am considering going long.?
Analyst
Senior:
The technical aspect of the Senior’s shares is quite interesting. The first reason has to do with the ‘hammer’ formation which they left behind on the weekly charts last week, with a low at 261.1p and a close at 276.6p. Secondly, while the present week has just begun it did begin with a ‘bullish’ gap. What I am trying to convey is that a downwards corrections to fill in a good part of that breach – and perhaps even as far down as 271p - would actually constitute a positive development. That is because what really matters is the aforementioned ‘hammer’ formation, which was formed at the bottom part of the bearish price channel carved out over the last few months. Hence, so long as last week’s lows at 261p hold we would actually be optimistic.
Monday June 30th: Imagination Technologies
Reader: Any thoughts on Imagination Technologies?
Analyst
From a longer-term perspective it is clear that the shares of Imagination Technologies have been in a bearish trend since April of 2012. The only interesting aspect in the stock, with a longer-term view, is the fact that it was able to manage a bounce from between 140-150p, an area of support which dates back to July 2007. With a view to the very short-term technical support comes in at 200p and below that at 180p and 164.2p (bullish gap left behind on March 19th). The shares have left behind two large bearish gaps, first at 236.8p and then another at 224.8p. Today’s early bounce allowed them to fill in most of the first of those two gaps, but there is little more to say. The share price has been seriously knocked down and the stock is quite weak. It is not often that one comes across two successive bearish gaps that large.
Friday June 27th: Cable
Reader: How do you see the outlook for cable at the moment?
Arek Okrasa: I see cable as preparing for a sharp upwards movement to the 1.7140 level. However, before it happens we may see a correction to the 1.6900 mark. At least for the moment, we see an Inside bar formation on the daily chart. The mother candle from the formation has been broken to the downside, suggesting a further move to the downside.
If that is the case, I will be on the look-out for a drop once cable moves back below 1.6990 (1.7014 at the moment) - the target for the currency pair is 1.6900 and from that level we can then assess if this was just a shallow correction or if the possibility exists of further downside. Alternatively, if 1.7065 is broken first (before 1.6990 is taken out) entering longs can be considered as a first option with the target for taking profits remaining at 1.7140.
Wednesday June 25th: Fresnillo, Debenhams, Yahoo
Reader: Could you look at Fresnillo, Debenhams and Yahoo please?
Analyst:
Fresnillo:
Today’s [June 25th] share price movement in Fresnillo is quite interesting. In fact, Wednesday’s session lows fit in perfectly with the typical ‘throw-back’ movement towards the upper part of the bearish-sideways price channel which the stock managed to break through to the upside on the previous day. Purely for trading purposes one possible set-up might be to open longs with a short-term target at £9.34 placing a stop-loss, on a close-of-day basis, inside the bullish gap which the shares left in their wake last Friday (£8.35). As opposed to the bulk of the rest of the issues in the market, the share price trend for this stock is not bullish but rather lateral or sideways.
Debenhams:
It is in a bearish trend. On top of that, it recently lost an area of technical support towards 70.85p (levels last seen towards the end of 2013 and start of 2014). Nonetheless, the stock may be due for a bounce (as part of a pull-back) towards the resistance at 710-720p. The weekly highs and lows are clearly moving lower. That means that the trend continues to be bearish. Only a break above 82.4p might indicate that buyers are returning to the shares. Below us, no clear level of technical support is discernible until the 50p mark, September’s lows.
Yahoo!:
The share price has been setting successively lower highs and lows since the start of the year. Therefore, it is evident that it is a corrective phase. With a view to the very short-term a support zone lies just around the corner, at $33.10. Should that be surrendered the next significant area of support comes in at $32.15. A move lower in search of support at the base of the sideways-bearish movement of the last few months, at $30.70, cannot be entirely dismissed either. In the final analysis however the stock is clearly in a bull trend, although it then entered into the current correction at the beginning of 2014. Even so, for now there is no sign of a trend reversal pattern nor of an end to the recent share price falls.
Dow Jones Industrials, Footsie, cable
Reader: How do you see the technical aspect of the Dow Jones Industrials and FTSE 100 as well as that of EUR/USD and cable?
Analyst:
Dow Jones:
The trend is just about as bullish as one could hope for; after all, the benchmark just recently established fresh year-to-date and record highs. As long as it continues to carve out successively higher lows and highs absolutely no sign of weakness will be evident. On the other hand, the possibility of a short-term correction always exists, given that it has become significantly overbought over the span of the last few weeks. In fact, although it is still too soon to tell bearish divergences which may be foreshadowing a loss of momentum – but always within an existing uptrend - may be just about to materialise. The nearest technical support comes in at 16,700, as long as the benchmark stays above this level not even the least amount of weakness will be apparent.
FTSE 100:
Britiain’s top flight index continues to be one of the most robust at the global level, halfway between the main Wall Street benchmarks and their European peers. Within the latter only the Dax-30 – which is at record highs – can beat it. The Footsie has been in a horizontal range since last summer, albeit with the slightest of upwards biases. Looking at the shortest time horizons the benchmark may be undergoing the typical “a-b-c” type correction. That means that if last week’s lows (at 6,736) are a part of the tail end of a “c wave” then from here on out, but only if the year’s highs at 6,895 are taken out before then, we may see the December 1999 highs at 6,950 being surpassed.
EUR/USD:
The medium-term trend for this currency pair continues to point higher even if at present we are still purging past excesses by means of the present correction. In any case, and with a view to the short-term, the pair is in a ‘no man’s land’, half-way between support at 1.35 and resistance at 1.3670. In so far as it does not abandon said trading range (1.35-1.36709) we will not have even the smallest hint about what the direction of the next move might be.
GBP/USD:
From among the main currency pairs cable is, by a wide margin, exhibiting the greatest strength. The proof is in the impeccably higher lows and highs established since last summer. Hence, it seems headed higher. Throughout the last few sessions we have witnessed a consolidation above the previous year highs, which were set in May at 1.3696 (now the support zone which is most nearby). Although in the short run we cannot rule out a small correction in the wake of the vertical moves higher over the last few weeks the truth is that there are no important levels of resistance discernible until towards the 1.7340-1.7350 area (which marks the 50% retracement of the drop registered from the highs of 2007 all the way to the lows of 2009).
Wedge pattern in GBP/JPY
Reader: It would be nice to look at GBP/JPY. It has been shaping up with a great looking wedge pattern and been a while since touching the 200-day exponential moving average. It would be nice if you look at how to trade the break out of the wedge pattern regardless of which way it goes and how to determine if it is the start of the breakout. Been could out twice already where I thought it was the start and wasn't.
Analyst: The currency pair about which you inquire does indeed seem to be attempting to overcome the upper part of a ‘triangle’ pattern, rather than a ‘wedge’. The difference lies in that the former is characterised by successively lower ‘highs’ and successively higher ‘lows’. In theory a break to the upside on an end-of-week basis (using Japanese candles) with prices closing above the year’s high at 174.85 would signal that the ‘bullish’ trend was still in place. The most likely scenario following that would usually be a move higher towards 186.56 – towards the ‘bearish’ gap which was left behind on weekly charts in October 2008.
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