How far will Merlin Entertainments fall?

Merlin Entertainments' (MERL) share price enacted a bit of a snow job on traders, using two differing feints to lure investors.

Firstly, on 5 October, the share price broke the obvious downtrend since June 2017. For many people this is sufficient reason to become involved in a company.

Secondly, the one which gets us angry, was the fake ‘higher high’ achieved on 10 October. It was only 468.2p, just above the prior high of 467p and usually sufficient to provoke a raised eyebrow as something was clearly about to happen.

This sort of move generally would cause us to write: “Above 468.2p and we’d hope for growth coming to 494p…”. This unfortunately risks making folk get involved beforehand.

Instead, what happened leaves a bad taste, along with a suspicion the trend break and higher high were deliberate moves to instil confidence, prior to sending a few investors money on a protracted holiday.

However, in this particular instance, we’d already be prone to questioning price movements. A question mark decorates something which happened back in 2016.

This particular plunge is present on most chart platforms and it’s something we’ve learned to question every time it’s present. We’re not sure whether it’s early warning of coming trouble or not. But too often, a share which exhibits such stupid irrational intraday drops will eventually follow through with a severe plunge.

The situation now with Merlin’s drooping wand is of weakness below 355p pointing at 313p with some bounce potentials. In the event 313p breaks, we’re looking at 236p as a point where it almost must bounce.

Ultimate bottom, the point we cannot calculate below, is at 135p.

If Merlin plans a magic trick, above 448p will convince us we’ve misread the situation.

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