Chart of the week: A low risk/high probability trade
Recent price action suggests this ex-10-bagger could enjoy a sharp rally, argues our technical analyst.
25th February 2019 10:40
by John Burford from interactive investor
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Recent price action suggests this ex-10-bagger could enjoy a sharp rally, argues our technical analyst.
Is Liberty Global now a solid Buy?
This global TV and broadband company (incorporating Virgin Media among others) was another darling of the Stock Exchange – until June 2015, that is. Since then, it has disappointed early investors by shedding a Fibonacci 62% from its £58 high to the recent $20 low last month.
Was that $20 low a Fibonacci coincidence (hint: not if you have been following my Tramline Trading methods here).
So, with that drop, is this on my list of 'Buy Low/Sell High' candidates?
Let's have a look at the long range weekly chart for perspective and clues:
Source: interactive investor Past performance is not a guide to future performance
From the March 2009 Credit Crunch lows at around $5, the rally has traced out a classic five up to the 2015 high at $58 – a 10-bagger. No wonder retail investors flocked to this share!
But in a timeless proof of the maxim that knowing when to sell an investment is a heck of a lot harder than pushing the Buy button, the shares embarked on the 3½-year bear trend after breaking key support levels.
Not that knowing when to buy is simple! Far from it – but by using a time-tested method, your odds of success are much greater than buying at random (otherwise known as the 'gut feel' method). Correct timing is crucial. Also with a proven method to enable entering near major turns, you can set your stop loss quite close to entry and that offers you a low risk/high probability trade.
And I believe we are being presented with just that here.
The decline is a classic 'three down' to a momentum divergence around the Fibonacci 62% level (that level should ring a bell!). That places the odds for a significant rally phase front and centre.
Here is the daily chart of the latest action in the C wave:
Source: interactive investor Past performance is not a guide to future performance
I have a lovely tramline pair with the lower line of particular interest. First, I have a highly accurate PPP (Prior Pivot Point).
Second, there is a superb 'overshoot' (a selling climax) at the wave C low. An overshoot of a reliable tramline usually heralds a sharp reversal - and that is indeed what is in progress.
The market is testing the upper tramline and my first target is the $32-$34 zone. An eventual break above the B wave high at $40 would set up higher targets where $44 would not be out of the question.
Naturally, only a solid move below the $20 low would cause me to re-assess.
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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