Is Novacyt set for another share price boom?

The disease testing company could hit new highs as venues demand tests before coming in.

Novacyt

We reviewed disease test makers Novacyt (LSE:NCYT) more than a year ago, before Covid-19 was as big an issue as it proved to be.

On the chart we'd given a potential high of 299p, not for a moment expecting it'd be true, and either way ultimately utterly eclipsed during the ensuing year. It's probably safe to say Novacyt’s testing kits are proving game changing for the company (and investor) fortunes.

The price entered Buzz Lightyear territory (infinity and beyond!) when it achieved 1,260p last October.

• Our very first look at Novacyt shares
• What we predicted would happen to Novacyt's share price

The months since the high have seen the price 'hesitate', literally halving in value and scaring the pants off investors. Despite the share recovering to almost the level of the previous high, we're a little cautious.

The price both failed to close above the highest closing price (1,190p vs 1,194p) nor did it trade above its prior highest intraday price (1,206p vs 1,260p).

Neither of these statistics give confidence, both failing to achieve the desired ‘higher highs’ so loved by analysts. From our own perspective there was a third issue, as we calculated the potential of 1,236p as a high for January this year. Instead, the share price only achieved 1,206p, then dropped like the proverbial.

• Why Novacyt is back in favour and AIM’s other big movers 
• 10 stocks that helped AIM be a world beater
• Why reading charts can help you become a better investor

As we're able to prove three points of weakness, we feel it wisest to examine scenarios capable of provoking reversals. Below 630p looks the most obvious early warning.

With the price trading around 682p at time of writing, the share does not need to work hard to cause alarm. Trading below 630p looks capable of triggering reversals to an initial 420p with secondary, if broken, at an ultimate bottom of 194p. To be honest, we do not trust these numbers for several reasons.

Firstly, the growing plethora of ‘if you want to come in, you're getting a test’ situations shouldn't surprise, and it's unlikely this situation shall ease soon. We suspect quite the converse shall prove true.

In addition, last January Novacyt reported a 20-fold increase in revenue in what was described as a transformational year. Neither statement exactly screams caution for share price movements against one of the leading companies providing testing kits.

When we review its share price movements since the start of February, it looks clear the company needs only trade above 830p to again become interesting. In such a scenario, we're calculating the potential of recovery to an initial 967p with secondary, if bettered, at a fairly noncommittal 1,158p. Our secondary comes with an important caveat. Should such a rise be powered by positive news flow for the company, the share could easily accelerate to 1,527p.

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.