This week provided a fine example in ‘sector read-across’ with management updates from two major corporates contributing to huge share price moves for both themselves and sector peers. The sectors in question are client favourites, intricately linked to consumer confidence and likely to figure in many a portfolio – Retail, which I talk about below, and Housebuilders which my colleague discusses here.

Next made for a very poor start to 2017 on Wednesday with a hugely disappointing Q4 trading update which we had forecast the day prior in what turned out to be a very nicely timed trade idea. The shares are down 18% this week as sluggish sales and a poor outlook forced it to cut guidance (again!) and shareholders to abandon ship. This latest profits warning merely rekindled a 13-month downtrend and sealed the deal on another sharp leg lower. Blame was put at the door of an uncertain outlook and Brexit-inspired weak pound increasing costs along with a higher living wage squeezing margins. Not good.

The Next news coupled with analyst downgrades in the sector dealt a real blow to the likes of Debenhams (-10%) while Ted Baker, Halfords, Dixons Carphone and Marks & Spencer fell 5-7% and Tesco, ABF (Primark) and Kingfisher (B&Q) lost 2-4%. It was only the cheaper end of the pricing spectrum that did well with a positive update from B&M Euro Value Retail (record Christmas trading, reiterated guidance) sending its shares higher by 8% this week, helping keep the likes of WH Smith, AO World, JD Sports, Sports Direct and Dunelm from anything more painful than a 0.5% loss.

My point here is that surprisingly good or bad news will almost certainly move a share price, offering profitable opportunities. However it rarely stops there with peers having a tendency to react too, often quite significantly as the above percentages attest. In some cases this is where the real trading opportunities lie as investors and traders take time to digest the primary news, deciding what it means for the rest of the sector and re-pricing accordingly. If you are quick in picking which one – even several – peer shares will rise or fall, you can often get in at the best levels. As they say, “you’ve got to be in it to win it”, and “the early bird catches the worm”.

 The above trade idea was a solid example of our trading research and use of technical analysis/charting to identify when share prices may be turning higher or lower. In the case of Next, the shares were already down over 3% on Tuesday afternoon, having turned back from a trendline of resistance that stretches back to February. The failure to clear the hurdle was almost teasing us about the potential for the next day’s trading update to disappoint and send the shares lower. On Wednesday’s they duly complied, falling another 15%, exceeding even our expectations.

If you would like to be alerted about similarly profitable trading situations, get access to our research now and see what you’ve been missing out on all this time. You have nothing to lose, and everything to gain. Think of it as a New Year’s Resolution to improve the quality of the information you receive and the way you trade forever.

Mike van Dulken, Head of Research,  6 Jan