Shares digital

United Utilities (UU.)

The recent bearish sentiment in the general market has fed through to the shares with a decline of some 17.5% seen since mid-December. As a result there is no escaping the fact that the chart now displays a significant head-and-shoulders pattern, which has formed since last summer. However, the selling has taken the shares back to test a more significant bull trendline that has proved conclusive in its ability to terminate selling four times previously. Furthermore, its support is coming into play close to levels from which the shares have rallied sharply and which also give the opportunity for a close protective stop to be employed. Should the bears re-emerge and drive the shares below 623p then all bets would be off. However, while the support holds, look for gains to initially test the bear trendline, currently coincident with the falling 50 and 200-day averages close to 702p. Above this level look for resistance at 720p ahead of a test of the other bear trendline on the chart now descending through 766p.

BUY at 669p • Stop Loss 638p • Target 760p

National Grid (NG.)

In a similar line of business, National Grid’s shares have also faltered with the start of 2008. Having previously traded up from their 2003 low of 370p and increased in value by almost two-and-a-half times. Now the shares have moved to pressure the baseline of the channel that defined this bull run, a move that was forewarned by the decline in momentum toward the end of last year. Of course, there is no ignoring what could be a large double-top formation in the throws of completing, though many such patterns fail to make that final move. Should it do so then the expectation would be for the shares to drop down close to 500p. However, the past bout of selling has all but completed the targeted move derived from the flag formation that can clearly be seen as the shares tested support from their 200-day average, and the move outside the channel could be interpreted as providing symmetry to the blow-off above the channel return line seen at new year. Again, the proximity of key support suggests an opportunity for an up trade, with close stops seeking a move to test clear resistance close to 800p.

BUY at 722p • Stop Loss 698p • Target 800p

Centrica (CNA)

The weakness in Centrica’s share price started earlier than either of the other two stocks I have looked at this week, and has carried through to breaking the bull channel support line early in 2008. Latterly, the upside has been constrained by resistance from the 50-day average and we now also have a declining bear trendline in place, which is set to offer resistance at 340p at present. Realistically this would be the key level to break to negate the present bearish backdrop. Increasingly the bears are pressuring support at 309p, a level that was previously resistance in early 2006. If this level gives way then there must be a good chance that further weakness will ensue to take the shares down to test the super-long-term bull line drawn off lows in May 1997 and April 2003, and which is placed on the chart currently at 270p, close to another level of previous congestion at 262p. This latter level is also the derived target if recent activity is considered as a maturing downward-sloping right-angle triangle formation.

SELL at 307p • Stop Loss 324p • Target 262p