Vodafone shares must do this to avoid another collapse

Yesterday's dividend cut was inevitable, but is it sufficient to trigger a sustainable recovery?

Vodafone (LSE:VOD) 

Last time we reviewed Vodafone (LSE:VOD) was in November last year, we'd given an upper target of 174p. The price achieved 172p before fallback, definitely 'close enough', but perhaps also an early sign of coming weakness.

We always demand target levels are bettered. Unfortunately for Vodafone, we also gave a flip side to the story.

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By warning the price dare not to fall below 144p, fate was duly tempted and toward the end of January this year the trigger level was broken. This effectively started a timer for a visit down to an initial 123p, perhaps even 109p if broken.

By reaching 125p today (Tues 24 May), it has come sufficiently close to our initial drop level to force an update on the big picture potentials.

So, what awaits below 123p?

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In the event 123p breaks, further weakness down to an initial 114p makes sense. If (when) broken, bottom calculates at 109p.

In almost any circumstances, we'd expect a proper rebound from the 109p level. The caveat; if further reductions are driven by a ready supply of negative news, there's a massive risk should 109p break as "ultimate bottom" computes at a visually unlikely 50p!

We prefer to think of this as absurd, given it matches a price level last seen in 1996. Amazingly, this price level also marks the start of the ruling red uptrend, a trend now broken with the share achieving lower lows.

We suspect it shall bounce just before 109p, if any real strength is to make itself known.

For the red uptrend to confirm its validity, Vodafone requires to close a session above the trend. At present, this demands the price exceed 148p. In doing so, we'd regard the share as heading to an initial 165p. Our secondary, if the initial target level exceeded, calculates at 175p.

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.