Interactive Investor

How BT shares could fall over 20%

27th July 2016 09:34

Alistair Strang from Trends and Targets

For those folk who stay or work on the west coast of Scotland, British Telecom is never far away from their affections. Unfortunately, this is generally due to a desire to throttle the company because of their Third World broadband provision for rural areas.

In fairness, this appears common once you evacuate from major population centres across the UK. At Trends & Targets, we keep "unlimited but fair use" wireless dongles in reserve for those days when BT replaces the two tin cans with semaphore signals and our speed drops below 1Mbps.

We doubt the company's failure to provide high-speed access to rural areas is entirely to blame for the predicament in which their share price now finds itself, but we'd advise caution before thinking "Hey, isn't BT cheap?"

To cut a long story short, the price of BT shares was - in common with many others - given an absolute stuffing on Brexit Day.

The share price was moved below the uptrend since 2013 and now resides in an area with drop potential to 309p, but, realistically, we'd expect a real bounce from 212p, as weakness toward 309p would also shatter the uptrend since 2009.

As the company price is currently trading around 400p, these seem rather scary drop potentials, but, from our logic, the share price needs better than 435p currently just to cancel the immediate drop risks and return to an area of relative sanity.

In fact, even above 432p would exceed the immediate downtrend and give some hope for the future. Above 432p generates sufficient oomph for 464p, with secondary a longer-term and less likely 522p.

The reason we're hesitant about the secondary is the dashed blue line. This dates back to 1999 and, given the highs this year have failed to better this line, it appears the market is perfectly aware of this trend.

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.

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.