BAT is looking vulnerable to more downside

Our charts expert takes a look at the tobacco giant's share price movement. 

There are some companies we're almost supposed to dislike. British American Tobacco (LSE:BATS)is one of these.

Budget airlines loom high on such a list, UK retail banks coming a close second, obviously estate agents with a stock market listing, and also, BT Group reserving a special place in hell.

This series of irrational dislikes proves not entirely irrational, due to any cynical attitude coming across in our reports being fuelled by personal experience with each corporate.

Despite plenty of personal experience with tobacco, saying goodbye many years ago failed to inspire any negative thoughts relating to the industry. No-one forced me to try a cigarette from the five Packet of Embassy Tipped my cousin had somehow procured.

The entire exercise ended in disaster soon after, when the cousin proved it was possible to drown a lit cigarette in a can of petrol. The flaw in his thinking came, when the can ignited and he kicked it away.

Unfortunately, we were hiding in his fathers garage at the time to enjoy our first smoke, a wooden building full of gardening equipment, a motor mower, and the inevitable cans of oil and grease.

We safely exited the building and ran for it, almost reaching my own house before the noise of a fire engine intruded the peaceful afternoon.

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Many years later, the cousin was getting married and I started to reminisce about the event. Despite now being in his mid-40's, he panicked in case his 80 year old father heard our conversation. Apparently this fire was recorded in history as spontaneous, probably due to the hot weather.

Thankfully, by the time of this wedding, neither of us still smoked but neither of us would be inclined to blame the tobacco company for anything. Smoking was once allowed, almost expected.

Now any possible anti-tobacco caveats are exposed, British American Tobacco share price is looking a bit problematic.

As the chart below highlights, it suffered the inevitable Covid drop in 2020, a reversal which matched a prior drop a year earlier. In the period since, the share price has proven less than interesting and it's creating as dangerous a picture as two small boys with a petrol can and matches.

In the event the price moves below 2670p, we shall be inclined to view it as heading down to 2554p with secondary, if broken, at 2337p. This secondary creates a major issue for us, taking the share price below its most recent historical dips, creating a "lower low" with an ongoing threat for continued downward travel.

We can calculate quite a terrifying series of drop potentials but the bottom line, should 2337p break, is the share shall be regarded as existing in a cycle where our "ultimate bottom" calculation works out at an eventual 692p. We cannot calculate below such a level.

However, just because the share hasn't recovered since the Covid-19 low doesn't mean it can't. Who knows, some bright spark may invent a vaccine which is baked into the fabric of a cigarette, thanks to a spurious theory that a respiratory virus needs a respiratory cure.

Or perhaps, with cannabis being legalised for medicinal purposes next month, somehow the tobacco companies shall jump on the bandwagon. At present, BATS needs trade above 2850p to suggest coming recovery to an initial 3091p with a longer term secondary, if exceeded, working out at 3434p. Despite this secondary ambition making perfect visual sense, we shall need revisit the share should such a target level be achieved.

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