Why logic tells us Fevertree shares are going down

This AIM favourite has had a difficult four months, so our chartist looks to see if it can defy logic.

Fevertree Drinks (LSE:FEVR) 

There is now a 100% certainty an asteroid shall impact the Earth. As for when, that's the big question as no-one can put a timeframe on it. 

Similarly with Fevertree Drinks (LSE:FEVR), we're pretty comfortable the price is going to head down. 

But again, the issue of timeframes arises! Thankfully, we can ameliorate the proposal by examining the logic behind the drop potentials.

Firstly, there's the red uptrend. The share has broken below red and failed to close above the trend in the period since trend break. This is not encouraging and suggests the presence of weakness.

Secondly, perhaps more importantly, two quite separate big picture arguments calculate with a drop potential of 1,212p. 

This is quite a scary proposition, not only allowing the price to nearly halve from current levels, but, worse, it will reside in a zone where negative news allows an ultimate bottom at 159p!

Third, there's the horizontal trend, something we increasingly trust. It's painted on the chart as a purple dashed line. (It might be magenta, we're still arguing)

The horizontal trend is at 2,073p. In the event Fevertree closes below this line, we are inclined to view this as the final straw, expecting it to trigger reversal to an initial 1,632p with secondary, when broken, down at 1,212p. 

We would expect some sort of bounce at the 1,632p level but if it breaks, any rebound risks being short-lived.

To get out of trouble, Fevertree requires a miracle recovery above the historical red uptrend. 

At present, this is around 2,517p. Such a movement allows growth to an initial 2,966p with secondary, if bettered, a happier looking 3,372p.

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.