Chart of the week: A popular share facing major turn lower

by John Burford from interactive investor |

There have been plenty of trading opportunities, but this FTSE 100 stock is looking increasingly shaky.

Burberry is in fashion – for now

I last covered Burberry (LSE:BRBY) shares in April 2017 and, in the two years since, the shares are roughly where they started! But in the meantime, they have swung from a low of £15 to a high of £23. This is not a great advertisement for the buy-and-hold strategy, especially given the rather paltry 2% dividend yield.

But for swing traders, the rewards have been rather less meagre. And today I want to point up a potential rewarding swing trade in this iconic luxury fashion share.

Source: interactive investor  Past performance is not a guide to future performance

The weekly chart shows a complete 'five up' to the £23 high set last August. And much of the advance was inspired by the love affair for its fashions by Chinese buyers. 

But with the Chinese economy cooling, and the well-deserved reputation of fashion trends tending to run hot and then cold (see Superdry (LSE:SDRY) for prime example), odds are against the shares recapturing their former glory.  

That makes my Elliott wave labels off the high either a budding 'five down', or a large 'three down' - either way, the trend is down.  Here is the close-up on the daily chart:

Source: interactive investor  Past performance is not a guide to future performance

The decline off the August high appears to be a 'five down' with a momentum divergence appearing at the wave 5 Christmas low at £16.20. That gave warning for a rather sharp upward thrust this year.  

And that pattern appears to be a 'three up', which is always counter-trend. In fact, the whole thing appears to be a classic 'five down/three up' Elliott pattern.

Since Christmas, the shares have been following the general market up. I believe that when the FTSE 100 index declines, Burberry will follow suit (pun intended).

But the Fibonacci 62% retrace also lies directly ahead in the £20.60 region and that is the normal area for a reversal. My best guess is for a major turn lower from around that area or before (currently £20.10).

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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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