Chart of the week: Is Vodafone now back in rally mode?
17th December 2018 12:37
by John Burford from interactive investor
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After a long and well-documented bear phase, technical analyst John Burford explains what he thinks will happen next and how to trade the shares.
I last covered Vodafone on 10 September when I suggested it was near a major low at the £1.64 area following a lengthy bear phase. But in fact, it had a little more work to do on the downside first and reached the recent low of £1.42 before staging a recovery.
And this is how I handled that event. This was the chart I showed last time:
Source: interactive investor Past performance is not a guide to future performance
I had decent tramlines working and the market had pushed down to meet the lower support line. This was a good candidate for a low and this is what I wrote then:
"At least, I have now the basis for a renewed bullish stance and crucially, a low risk trade where a stop loss can be set under the low at the £1.62 area".
Shortly thereafter, the market completely ignored my analysis and proceeded to move lower and took me out at my stop at £1.62. That was a minor loss – and was planned in advance (a most crucial strategy).
By setting a sensible stop, a trader can have peace of mind that even if touched, the stop would protect him/her from a major loss. Being prepared to take a small loss means the trader reduces the worry level. And that's a good place to be.
So this is the current daily chart:
Source: interactive investor Past performance is not a guide to future performance
I have re-drawn my tramline pair to fit the highs/lows better and the £1.42 low was a direct hit on the meeting of the lower tramline and the Fibonacci 76% retrace of the swing off the September 2002 low at £0.77 to the June 2015 high at £2.57. Support at this level is therefore strong.
With the momentum divergence at that low, the market was then poised for a rally in textbook form. And that is precisely what occurred. A buy around the £1.42 level was therefore indicated with a close stop loss set just below £1.40.
So now the shares have moved smartly up to the upper tramline resistance. A hard push above it would confirm the start of a more protracted rally phase.
Note that last time, I pencilled in a move up to the £1.76 area and on 28 November, it hit the £1.72 level and is currently consolidating the advance.
My next target is the £1.90 area. Only a move down to the £1.40 region would force me to re-assess.
For more information about Tramline Traders, or to take a three-week free trial, go to www.tramlinetraders.com.
*Horizontal lines on charts represent levels of previous technical support and resistance.
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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