Interactive Investor

A surprising future for the European blue-chip index?

3rd June 2021 08:49

Alistair Strang from Trends and Targets


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Stoxx 50 beats pre-pandemic levels, plus optimism for Petrofac.

Euro Stoxx 50 & Petrofac

For us, increasingly it appears everything revolves around price levels before the Covid-19 drop last year. If a price has recovered above this level, we tend toward enthusiasm, due to a price moving from 'recovery' into 'growth'.

For instance, with the Stoxx 50, the index level was roughly 3,900 before the pandemic hit the fan. Now, it's trading around 4,085 points. In this instance we're happy, and able to speculate on a surprising future for the European index.

The immediate future is pretty amazing, needing to move above just 4,102 points to confirm a cycle toward an initial 4,178 points. If exceeded, our longer-term secondary calculates at 4,405 points.

We've quite a strong cluster of arguments pointing at the 4,400 level as a viable ambition. Not least is the impression from the chart below as, in addition to arithmetic, there's a strong visual indication some hesitation can be anticipated. That depends on if the index can make it up the mountain to challenge a high not seen since 2007.

If exceeded, there's an even longer-term influence from 4,817 points, allegedly painting the potential of a new all-time high. For it all to go pear shaped, the European index needs to reverse below the blue on the chart below, presently around 3,800 points.

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

As mentioned above, we ration our enthusiasm until such point a price is trading above its pre-pandemic level.

Petrofac (LSE:PFC) describes itself as “a leading international service provider to the energy industry, with a diverse client portfolio including many of the world’s leading energy companies”.

Its share price prior to the Covid-19 drop was 373p. At the time of writing, the company is trading around 139p, substantially below the level achieved on the initial pandemic drop.

We're actually fairly impressed the share price has carefully avoided closing below 90p, as there were many reasons to hope for a rebound at such a level.

Currently, with oil prices rising and lockdown easing, surely increased activity in the oil sector shall rub off on Petrofac. If we're strict, we can establish 145p as a potential trigger level.

Exceeding this should propel the share price to a stunning 150p. Okay, perhaps not very impressive. But in the event 150p is bettered then bigger picture forces should start influencing the share price properly, provoking recovery toward an initial 182p.

The big picture is slightly vague as to our secondary price growth target if this level is successfully challenged. The share price could either head toward a longer-term 255p or, more probably, an attempt at pre-pandemic levels which works out at 375p.

Petrofac needs to reverse below 90p to cause utter panic for the company share price future. For now, we suspect it shall prove worth watching.

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. 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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