BAE has spring in its step

By THIS IS MONEY
Updated:

 

SHARES in BAE have taken off following the announcement that Dick Olver, currently deputy chief executive of BP, will take over as chairman.

Crucially, the rally following this week's appointment has triggered a technical breakout, for Europe's largest defence contractor. So what can we expect over the coming days? As always, Technical analysis has the answers.

For the past few weeks, BAE shares have traded within a 'Triangle' formation. This is exactly as it sounds, with a ranging share price moving into a narrowing range, forming a triangle pattern, with an upward sloping support line combined with a downward sloping resistance line.

It's as if, as the stock volatility reduces, it compresses energy like a spring, just waiting to explode either upwards or downwards.

This week's news was enough to cause a breakout to the upside at 195p. The result has been a rapid rise in price to the current level of 200p.

But how much further will the stock rise? Well initial targets point to 208p, which was the March high for the shares.

The next higher target area comes in around the 212p zone, and a break of this level will trigger a rush towards the 240p region.

On the downside, BAE is facing delicate contract negotiations with the Ministry of Defence about the future of the multi-billion aircraft carrier programme. BAE was named prime contractor of the programme last year, but recent reports suggested it could lose the lucrative contract after all, with talks between it and the MoD at an impasse.

With this in mind, keep stop-loss orders in place, as a close below 192p would signal a formation failure.

• Stockwatch is written by William Akerman of Quantigma. For more views on techical analysis, go to www.quantigma.com

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