Chart of the week: How to trade Barclays ahead of results day
19th February 2018 12:47
by John Burford from interactive investor
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Will the other Barclays shoe drop?
Exciting, isn't it? It appears the deep complacency investors were basking in for many months was shattered with a bang late last month. The VIX Fear measure of the US S&P 500 index made such a rapid ascent off the floor that it rivalled that of bitcoin and Elon Musk's rocket to Mars!
A derivative of VIX had been (mis?)-sold to US retail investors as a can't lose proposition and, in the space of one hour, most had lost their entire investment. Such are the ways of the market when dealing with sure things.
And now stock indexes are in rally mode off the deeply oversold lows made earlier in the month, and the VIX has returned back to earth.
And we are all asking is this a dip to buy or one to unload from?
Interestingly, the degree of the recoveries in the major global indexes are by no means equal.
The Nasdaq has recovered the most with a Fibonacci 76% retrace. The Dow, S&P and small cap Russell 2000 have regained a Fibonacci 62%, while the Japan Nikkei and German DAX are matching the with a gain of around the Fibonacci 38%. The is by far the weakest with only a recovery of just over 23%. A very wide variation.
Of course, many of these big differences are down to currency exchange rates, with the US dollar being exceptionally weak in recent months, particularly against sterling, the euro and the yen.
But with the rally in progress, should we be looking not to buy the dip - as most suggest - but to sell certain stocks either short or at least lighten up on longs?
I am finding - a long-time favourite share - is in an appealing position.
Here is the daily chart with my wave labels:
The entire bear downtrend off the February 2017 high at 244p is a lovely five-wave affair to the 178p November low. The subsequent relief rally has the form of a three up, which is counter trend, with the c wave turning right on the Fibonacci 50% resistance, which is a normal retrace. Note the ominous momentum divergence between the a and c wave highs. This flagged the weaker rally in the c wave and heralded the sharp decline to the 187p low.
And last week, the market has recovered to the Fibonacci 50% retrace of the previous wave down at 200p and is close to kissing the minor pink trendline.
Odds are good that the market will turn back down from here or slightly higher. But if the market catches a bid on the annual results due on Thursday February 22nd, a rally extension to the 205p area is possible. But then, watch out.
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