Chart of the week: Trading this FTSE 100 preferred
What comes next for NEXT?
Next (LSE: NXT) was once one of the darlings of the Stock Exchange with its latest models and sizeable online presence – a factor alas lacking from many of its competitors on time. But the highly stretched valuation had reached its zenith with the thrust to November 2015 excessive on the £ eighty-two stages.
And, due to the fact then, the stocks have traced out huge waves both up and down, permitting nimble traders plenty of scope for profitable activity. Here is the lengthy variety weekly chart showing a clear entire five-up Elliott Wave pattern to the high:
Source: interactive investor Past performance isn’t a guide to future overall performance
The red wave five additionally sports activities a clean five up into the £82 excessive to a substantial momentum divergence which heralded the initial sharp decline to my A tide low at £35 – a loss of £ forty-seven (approximately a Fibonacci sixty-two %). Ouch!
Naturally, an investor who followed the Elliott Wave model would have possibly jumped ship properly before that time. Sadly, ‘Buy and Hold’ investors are still below water if they had bought within the final six years.
So, where are we now? Does the picture seem bullish, bearish, or neutral?
If my wave labels are accurate, we are in wave C down off wave B excessive at £ sixty-two.
Here is the near-up of new action:
Source: interactive investor Past performance is not a guide to future overall performance
There are numerous notable capabilities of this chart. First, I have remarkable tramlines consisting of a third central tramline, T3. Setting such a tramline underneath an established tramline pair will commonly provide you with a superb goal to goal for. And, in truth, it did simply that once the stocks kissed the underside of the center tramline, it staged an ordinary ‘scalded cat jump’ down to T3.
I even have discovered that after a market breaks under an up-sloping decrease tramline, plants a kiss, and starts to lower back away, it will soon crash in a complete fast way to the following help place.
This fast circulate I call a ‘scalded cat jump’ in honor of the extra famous ‘useless cat leap’. In this example, the cat may be very plenty nor lifeless – it merely scampers far from the recent water supply.
From the T3 support, the stocks have rebounded as the general market has recovered this year. Also, the marketplace turned into looking ahead to dire Christmas trading results, which became proved completely incorrect (no longer the primary time this has taken place!) – and plenty of quick masking ensued in January.
But with the stocks currently on the £48-£50 place and into primary resistance (on an utterly sturdy momentum divergence), they may be susceptible to a swift resumption of the decline in wave C, which would take them under the T3 low at £40. Breaking below that would install the next goal at the A wave low at £35.
John Burford is the author of the definitive textual content on his trading method, Tramline Trading. He is also a contract contributor and not an immediate worker of the interactive investor.
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