Chart of the week: Watch for a short squeeze rally
This share has fallen sharply since 2015, but our technical analyst sees signs of a likely trend change.
17th February 2020 11:48
by John Burford from interactive investor
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This share has fallen sharply since 2015, but our technical analyst sees signs of a likely trend change.
Can Hammerson spring to life?
Is there anyone out there who is bullish on High Street retail?
The headlines keep getting worse with a continuous barrage of disaster after another. Major retail chains have collapsed and even the saintly retailer to Middle England – John Lewis – is reported to be in trouble with this year’s bonus a paltry 3% - the lowest since 1954.
And that is precisely why I am taking a hard look at Hammerson (LSE:HMSO), which is one the UK’s biggest operators of shopping malls among other interests. Rents from retailers make up a large part of its revenues, and these are being hit with rent reviews departing from the age-old custom of ‘upward only’. These were never going to be sustainable in the Amazon Age.
The short interest is huge – as it is with Intu Properties (LSE:INTU) another major UK shopping centre landlord in deep trouble with a huge debt load.
So, my question is – has most of the share price damage been done and can landlords be creative and resurrect the retail experience in new ways? Or will it go the way of Intu?
Here is the long-range chart that clearly shows the devastation to the share price:
Source: interactive investor Past performance is not a guide to future performance
From the £7 high in 2015 to the recent £2 low – a destruction of 72%, but note the selling pressure started five years ago, much earlier than when the tsunami of bearish mainstream media headlines started to appear.
When I start to look for a major low, I like to focus on the shorter-term chart for clues, and here is the daily for Hammerson:
Source: interactive investor Past performance is not a guide to future performance
The £2 low was put in last August and, since then, it has rallied to £3.25 in October in a five-wave pattern, then dipped back to the current £2.30 area in three waves (a-b-c). That is a classic sign of a likely trend change, especially given the current sharp momentum divergence.
With this classic setup for a likely short squeeze rally, my first target is around the £3 region. And, with a following wind, another possible target is last year’s gap at around the £3.80 region. Remember, most gaps do get filled eventually.
Only a new dip below the £2 low would send me back to the drawing board. Thus, we have a new candidate for my collection of Buy Low/Sell High issues where the downside risk is low. Last year’s results are due out later this month on the 25th.
For more information about Tramline Traders, or to take a three-week free trial, go to www.tramlinetraders.com.
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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