A wizard share for the contrarian investor

Merlin Entertainments (LSE:MERL)

Our last report on Merlin (MERL) gave a pretty cynical, almost nasty, opinion on how the market has seen fit to manage this share price. Unfortunately, it appears we were correct with our overdose of cynical.

To get the wizardry out the road first, currently trading at around 333p, there’s a pretty good chance it will exhibit some sort of bounce in the 324-329 range, one perhaps able to reach the low 350’s. Unfortunately, we suspect such a recovery will not last as the big picture continues to calculate “bottom” at 313p, an area where a bounce is liable to be valid.

The “however” comes, should 313p be broken, as there’s a massive risk of a new price cycle commencing down to 236p. Worse, while embracing such a foul potential, it’s worth mentioning “ultimate bottom” comes along at 120p, the point we cannot calculate below.

While we anticipate a fake bounce anytime soon, what if the share price somehow betters 352p?

We’d take this as a sign bottom is “in”, instead running upwardly mobile calculations. For instance, above 352p and we’d be looking for an initial stutter around the 365p level. Secondary, if bettered, feels like a game changing 374p, propelling the price into a region with 403p longer term. And then, we shall need to stir the cauldron again!

 

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, Shareprice, or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. 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.

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