Argo Blockchain: don’t bet on a sudden rebound

The share has good recovery potential, but the question is timing.

Argo Blockchain

Cryptocurrency stock Argo Blockchain (LSE:ARB) has proven a surprise.

When we last reviewed the share back in January this year we'd given our usual two drop criteria. Our initial target was hit and broken. The secondary drop target remained untroubled with the share bouncing 11p above.

Then the fairy story commenced with the share confidently triggering and exceeding all three of our growth target levels. We even used the technical term 'if things go nuts' in describing the potentials.

Our third level target was given as 149p, and we've even circled it on the chart below.

But something funny happened.

We'd a pretty solid reason to anticipate some hesitation at the 149p level. There are times when we warn folk to watch out for the market opting to gap a share price up, and in this example the reason for the warning is pretty evident. 

On 15 February, when the market chose to neatly gap (manipulate) the share price above our target, sending a pretty strong indication that plans for further upward price movement were intended.

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At that particular point, the highest number we could calculate was 149p, leaving us clueless as to the final destination. Eventually topping out at 332p, the price is now starting to make a degree of sense, doubtless due to the reality of enjoying a trading history.

Legend has it that gaps in share price movements are generally covered with a share experiencing sharp reversals to the level of whatever manipulation gap is being chased.

In the case of Argo, it was gapped up from 143p in 15 February, the price neatly covering the gap with reversals on 19 April. As a result, a bunch of folk are probably expecting a rebound from current levels, due to the 'gap being filled'.

Unfortunately, there is no requirement for these share price gaps to be covered. The harsh reality is that most of them are not.

What happens next?

But sometimes, if sufficient people believe a story, there can be a mass of buying pressure in the following session which in itself provokes a bounce. In the case of Argo, any bounce needs to exceed 180p before we can take it seriously. Instead, we suspect some pain awaits for holders in the immediate future.

With traffic below 132p, we calculate the potential for reversal to an initial 120p. If broken, our secondary works out at 92p and hopefully a proper bounce. We can provide an ultimate drop level of 63p, this being the point we can no longer compute below.

The visuals with 63p, given the level of previous lows, indicate the potential for a proper bounce. We're obviously far from happy discussing a scenario where the share price risks more than halving, but the share has become dangerous. For the cautious, it is perhaps worth keeping a weather eye on it, just in case 63p makes a guest appearance in the weeks ahead.

We mentioned previously that any bounce currently needs to exceed 180p to be taken seriously.

This will bring the share price back above the red line on the chart, regaining the immediate uptrend. As a result, we can calculate an initial target of 222p with secondary, if exceeded, a more attractive-sounding 259p. Once again, if the price ‘goes nuts’, we shall give a third target level, and this time it's at 337p.

Source: Trends and Targets. Past performance is not a guide to future performance

Alistair Strang has led high-profile and 'top secret' software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know 'how it worked' with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea.