How Centrica shares could be worth 120p again

by Alistair Strang from Trends and Targets |

In the news for all the wrong reasons, Centrica shares must do this to begin their recovery.

Centrica (LSE:CNA) 

Last time we reviewed Centrica (LSE:CNA), we mentioned a possibility of danger if the price moved below 116p. We especially highlighted this issue by drawing a vertical green line at the proposed Brexit date. While Brexit didn't happen, on March 28th Centrica managed to wander below 116p anyway. "Go figure", as they say!

An additional worry was our initial 98p drop target. The market, obviously wishing to spare traders the opportunity of worrying about 98p, manipulated (gapped) the share price down to 97.34p on May 9th.

This was really not a good thing, tending to confirm that further weakness below 92p should power reversal to 82p and, hopefully, a realistic bounce.

There are major reasons for concern should the 82p level break. Quite alarmingly, it's the sort of nonsense we tend only to associate with the retail bank sector of the FTSE 100 index, essentially the prospect of major price drops which dig deep below any level at which the share price can be regarded as cheap.

In a sentence, below 92p now indicates coming reversal to 82p which, if broken, risks a longer term cycle to 28p, perhaps even 12p with negative news.

Generally, when the market spots this width of drop potential against a major share, it will quite sharply promote emergency price rescue movements. This is why we tend to hope for a real bounce at the 82p level.

To get out of trouble, the share price requires to exceed the blue line on the chart - 130p at present. Such an unlikely miracle would propel the share into a zone with an initial target of 161p. If bettered, secondary for the longer term is at 188p.

Instead, we suspect it shall be bounced - hopefully just before - from the 82p level and probably meander around with an upward level of around 120p until such time positive news or market conditions are deemed suitable to allow proper growth.

Source: Trends and Targets      Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang, or interactive investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

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