Chart of the week: The bull run on this British fashion icon is not over
10th April 2017 11:59
by John Burford from interactive investor
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Burberry remains in fashion for investors and hits my target
The fashion chain is one of the top names in British design. For many overseas buyers, it is a must-have name for in your wardrobe (or to carry the bag to show off when emerging from the store).
And with the very favourable sterling exchange rates, the overseas visitors – led by the Chinese - are flocking into their flagship New Bond Street boutique and walking out with £28,000 alligator coats.
I am quite sure the gross margins on that little item are helping pay the enormous rent and rates charges!
As the premier British fashion name, its fortunes have always been tied to the state of overseas economies and the sterling exchange rate. And both are working very much in Burberry's favour at present.
I last covered the shares on 17 January and noted the chart was tracing out a pretty five-wave continuation pattern that signalled an upside target around the £17 area.
Not only that, but by another independent method (a Fibonacci retrace), I was able to set another target in the same general area. The shares were then trading around the £16 area and this was the chart I showed then:
It has been about six weeks since then – let's see if my targets were achieved:
Bingo! In fact, the shares have more than achieved them. Last month, the shares rose to a high of £18.38 as an added bonus.
Here is a close-up of the rally off last June's low:
As a vivid demonstration of the power of tramlines, the entire rally has been contained in the trading channel between my tramline pair for almost a year. In fact, last month's high made an accurate hit on the upper tramline, allowing profits to be taken if desired.
Taking some profit off the table when a major target is hit is one of my tramline rules, especially if there is a momentum divergence on the daily chart.
In this case, there was no such divergence and that allows me to anticipate further gains when the current consolidation is over.
The previous high was £19.30 in 2015 and we are only £1.60 off it at present. I shall be keeping an eye on my tramlines and, of course, if the market does break below the lower line, I shall re-assess my bullish stance.
But for now, signs are that the bull run has not ended.
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