TA Q&A: Ask the technical analyst
Date: Sunday 06 Jul 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 ...
Monday July 7th: Kazakhmys
Reader: What level might signal a break-out to the upside in Kazakhmys?
Analyst: Stock in Kazakhmys is in a bearish trend but the possibility exists that if it is able to confirm – by a comfortable enough margin – a weekly close above 325p then a trend change may indeed be taking place from a medium-term perspective – to bullish. A first upside target seems to lie at 450p. In today’s session the shares have actually tried to attack resistance at 325p (having risen as high as 331p at one point) but have since lost their impetus. A close above 325p on a weekly basis would be a clear signal of strength.
Monday July 7th: Ryan Air
Reader: Any thoughts on Ryanair (RYA)?
Analyst: One could say that RyanAir shares have been trading in a more or less sideways fashion since the start of the year between €6.25 and €6.30, on the downside, and €7.8 on the upside. They are now just about in the middle of that range, which makes it somewhat hard to establish a concrete strategy given the difficulty of knowing where to place one’s stop-losses. In other words, when one enters the market they must try to set the stop-loss as close as possible to the point at which they enter the market. That can help a trader to limit his losses should the market go against him.
Having said that, the stock is now in an impeccable uptrend. At least in theory any approach towards support the support zone mentioned above should be seen as an opportunity to slowly take positions. As far as immediate levels of resistance go, these now come in at €7.65 and €7.8, the year’s highs.
Wednesday July 2nd: Most widely used technical indicators
Reader: I would be interested to know which indicators you find the most reliable as leading indicators of moves up and/or down. Do you also have any use for lagging indicators?
Analyst: Amongst the leading indicators which I prefer I would highlight, above all, the bullish and bearish divergences which sometimes occur between the share price and other indicators such as the relative strength index (RSI) and, above all, the stochastics. I also frequently make use of the divergences which appear between the EuroStoxx 50, the Dax 30 and the Nasdaq-100. The US benchmark rarely misleads and often anticipates movements in the more widely followed Dow Jones Industrials and S&P 500. In fact, the most recent bout of selling began to take shape when the Nasdaq-100 started giving off weak signals last March. I sometimes also track the German bund, which sometimes helps to get ahead of the next move in European equity markets.
Tuesday July 1st: Vodafone
Reader: Dear Sirs, I have traded Vodafone over the years quite successfully even from the low point at 80p back in 2002, however the current drop to 190p has really caught me out. Reading the fundamentals and given the healthy yield I am somewhat surprised. Would you recommend I hold or do you see further weakness?
Analyst: Despite the falls witnessed over the last few weeks there is nothing particularly unnerving about the current technical aspect of the shares. In fact, the possibility exists that from here on out the stock may try to slowly grind its way higher. That is because it is now leaning on the crest of the previous upwards impulse, towards 190p. Although it could continue to correct lower, although that seems unlikely, we would note that since October of 2008 the shares have been carving out successively higher lows and highs. That is to say, they have been in an upwards trend. On the basis of the above the current price levels look interesting if one is looking to the medium and long-term, given that the shares are at technical support and currently very oversold.
Tuesday July 1st: Senior
Reader: Could you share your thoughts on Senior (SNR)? I am considering going long.?
Analyst: 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.
AB
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