What a Rebound

It’s been an exciting start to 2016 with a steep market sell-off being followed by an even steeper rebound. This has brought UK equities back close to break-even for the year-to-date and sees many an investor asking where we are headed. With March seeing the major equity indices taking a pause to digest February’s gains, we take a look at a selection of blue-chip stocks which could represent exciting investment and trading opportunities for the coming second quarter, April through June.

All are household names. Some will have outperformed; others will have underperformed. Some could be due a rebound; others could be set for correction. It may be that certain are simply seen maintaining their current course, be that up or down. All, however, are worth considering in terms of potential to deliver market-beating gains by investing/trading them long (buy) or short (sell). To find out which stocks could be headed where, read on.

An interesting start to the year

January may have been one of the worst on record for stocks (-10%), however, February more than made up for it with a full retrace of the losses (+11%). Markets remain extremely focused on what are essentially very similar and simple drivers to those seen last year.

1. Global interest rates and stimulus. With the US Federal Reserve’s December rate hike having delivered such an awful Christmas present for markets, would it dare hike again soon, risking more financial market turmoil. Even if the US is in recovery mode and offing well, we don’t see it raising rates again any time soon. There’s too much at stake for Global markets, not just the US. Most of its peers are doing the exact opposite to avoid deflation and recession.

2. Chinese growth is slowing. The world’s number two economy is transitioning from being public investment and export-led for almost two decades to being more domestic consumption and private sector development based with an understandable knock-on to both global growth and commodities. However, it is still the fastest growing major nation on earth.

3. Commodity glut. Years of overinvestment and belief that the bullish music would play on forever (read ‘China’ growth) has resulted in the raw materials and energy sector needing to adjust sharply to what has become burgeoning supply coupled with lower, even waning demand.

4. Brexit – the UK’s referendum on EU membership is now less than 3 months away (23 June). This could have serious ramifications for UK companies, although many UK Index listed stocks have limited UK exposure in terms of revenues and profits. However, the effect on sentiment has already been registered by the Great British Pounds Sterling taking a knock against other currencies like the Euro and US Dollar.

5. President Trump? – As another political sideshow we also have the uncertainty about who could be the next US President and what their real policies might be. Property magnate Donald Trump is doing worryingly well in the race for the Republican nomination. The circus has a few more stops and is sure to keep investors both entertained and possibly concerned.

Which driver do you see as dominating the second quarter of 2016?

Winners and Losers

A look at the winners and losers of Q1 this throws up an interesting list.

In the green camp, Anglo American (AAL) fared best as commodities and their miners rebounded from their lows, with peer Glencore (GLEN) a very close second. Randgold Resources (RRS) and Fresnillo (FRES) which mine Gold and Silver – traditional safehavens amid market turmoil – also did well, helped by a strong bounce by the precious metals. Supermarkets WM Morrison (MRW) and Tesco (TSCO)  rebounded from multi-year lows on hopes that market share losses to the german discounters was set to slow and that a tie-up with Amazon andcontinued
restructuring, respectively, would deliver.

Among the reds, the banks have had a tough time while several central banks move to negative interest rates in an attempt to discourage them from hoarding money and get it out into the economy. RBS (RBS) saying no dividends until early 2017 also scared away income hunters while Barclays (BARC) exiting Africa spooked those hoping for the new CEO to re-intensify investment banking growth. Even HSBC saying it was not moving its headquarters from London has offered no help. A recent profits warning sent Next (NXT) to multi-year lows, while Ashtead (AHT) has become confined in a sideways channel as sentiment for the equimpent rental company sours on global growth woes.

All prices go down as well as up, but with one of our trading accounts you have the benefit of being able to speculate on falling as well as rising prices. That’s double the opportunity and a vital tool in the current market conditions. Our top picks for Q2 reflect this, in that we’ve included stocks that are at or near potential turning points – tops and bottoms – and thus have the potential to break up or down. Our list includes the likes of Lloyds Banking Group (LLOY), AstraZeneca (AZN) and easyJet (EZJ) among others we think could be ripe for some great trades in Q2.

So without further ado, lets have a look at the stocks to watch in Q2.

1) Lloyds Banking Group (LLOY)

You may be reassured to hear that Lloyds shares are still in an uptrend from their late 2011 lows! That’s great if you bought them back then, but the shorter term chart tells a different story with the UK’s bailed out bank fast giving up the (last ditch?) gains it made post 2015 results. The bounce off rising support just above 55p was encouraging, and it may well hold again if shares pull back once more towards it. But what’s rather more apparent are the converging trend lines on the longer term chart above (left).

LLOY; 5 year, weekly  

LLOY; 16 month, daily

The YTD low of 55p served as the third touch on the line of rising support and indicates a potential 6-year bearish rising wedge pattern that could threaten the integrity of Lloyds Banking Group's longer term uptrend. This means current price action around 70p and the100-day moving average is key. A break above would encourage bulls looking for a continued recovery back to May 2015 highs of 90p, while shares remaining below this level could see them lose momentum, filling the 25 Feb gap and possibly falling further. Such a pullback can of course be capitalised on with CFDs, which are explained at the end of the report should you be interested.

Do you think Lloyds Banking Group shares will rally back to the highs of 90p or fall back once more to the lows of 55p?

Broker Consensus (Source: Bloomberg, 31 Mar)

Brokers are still bullish on LLOY, with 90% of those covering the stock saying either ‘buy’ or ‘hold’ and 95% of target prices above current levels.

2) AstraZeneca (AZN)

AZN shares appear to have been flitting between one uptrend and another over the past 6 years. The question is: will they bounce off support at current levels or fall through towards 3300p? Since AZN is one of a group of defensive plays in the UK 100 , it’s no surprise the recent market rally has taken some of the wind out of its sails. However, with the Brexit referendum in June, the next two months could well see some risk taken off the table. That would include fund flows into safer havens like precious metals (plus miners like Randgold Resources (RRS)) and fixed income, but the investor seeking better returns may still opt for defensive equities that pay dividends.

Do you think AstraZeneca shares will fall back towards the lows of 2450p or rally up to the highs of 4900p?

Broker Consensus (Source: Bloomberg, 31 Mar)

Bloomberg broker consensus is neutral, yet gives an average 12-month target price of £47.80 (+25%). Furthermore, all but two brokers have their targets above the current price.

As always, we can give you the full rundown on all our Q2 stock picks. Just give us a call or drop us an email.

3) Shire (SHP)

M&A has been the talk of the Healthcare sector over the past three years and saw shares in Shire buoyed by chatter about a potential acquisition by US peer AbbVie. That deal fell through, and now shares are right back where they were before the excitement kicked off – back in 2014. Does this make the stock a reasonably priced M&A target again?

Do you think shares in Shire will fall back towards the lows of 1750p or rally up to the highs of 6000p?

We note the technical indicators are still trending down, a boon for bearish investors looking to short the stock. But while they do indeed still indicate a bearish market, it’s possible the July 2015 downtrend may have run its course. Two bounces off support around £35 will no doubt be welcomed by the bulls - hoping as they are for 3 year rising support to hold firm and provide a platform from which shares could rally. A look at Bloomberg’s broker consensus shows why bulls are watching this stock closely!

Broker Consensus (Source: Bloomberg, 31 Mar)

There are currently no sell ratings on Shire, and the most bearish target is still looking for 27% upside. Of the 11 brokers to give explicit price targets, all have put them above the current share price.

For a full rundown on Shire, click here.

4) British Land Co.

British Land is one of the biggest UK Real Estate Investment Trusts (REIT), and is currently suffering record fund outflows due to concerns the UK may vote to leave the EU in June. We still expect an eventual ‘stay’ vote as uncertainty and fear approach critical levels over the next two months. The question is simply whether or not such uncertainty is priced in. If yes, then BLND looks poised for a strong rebound from current levels. A recent break back above the 50-day moving average and February rising lows just about holding up would provide technical support to this argument.

However, one can’t ignore the skittishness and short sightedness of many an investor in current climes. The rate at which capital is currently being removed from London and South East based REITs is a concern and should be watched closely, but remember that fear in the market sometimes simply gets the medium to long term investors a better price…

Do you think shares in British Land will fall back towards the lows of 450p or rally back to the highs of 880p?

Broker Consensus (Source: Bloomberg, 31 Mar)

Another stock on which the brokers are bullish, the average target price implies 25% upside from current levels while the most bullish broker, Panmure Gordon, is looking for a breakout above all-time highs in 2016. Only 2 brokers out of 18 have targets below the current price.

5) Tesco (TSCO)

Tesco remains a favourite among our clients, maintaining as it is the biggest share of the UK (super) market and despite underperforming J Sainsbury (SBRY) over the past 12-months. Heavy restructuring while maintaining a decent market share cushion is a boon for shares fundamentally, indicating that Tesco may be undervalued from thet perspective.

On a technical level, what’s attractive about Tesco stock is that it tends to trend more (i.e. shares are a bit less volatile) than those of J Sainsbury, potentially making it a less risky play when trading both long and short. Bulls are encouraged by price action around the 50-week moving average, a decisive break above which would signal a major challenge to the 3 year downtrend, while a potential target at the 100-week moving average lurks about 11% higher.

Bears, on the other hand, will point towards overbought technicals and waning volume (divergent with the 2016 rally). While prices can fall irrespective of trade volume, they can only keep rising when volume itself is increasing. In that case, and given the significant hurdle presented by the shorter term moving average, a retreat back towards £1.50 could be on the cards.

Do you think shares in Tesco will rally up to the highs of 400p or fall back towards the lows of 135p?

Broker Consensus (Source: Bloomberg, 1 Apr)

Brokers are largely bullish in terms of rating with 77% saying either buy or hold. With target prices sitting evenly above and below current levels, we could see target price revisions (at the very least) in the coming days or weeks. You can be kept up to date with broker consensus on all your favourite stocks via the Accendo Research App by signing up for our free research trial here. You’ll have full access for two weeks.

6) Barclays (BARC)

Currently back trading around 4-year lows, one can’t help entertaining the possibility that the early 2016 bounce may simply have been consolidation and the unwinding of short positions – a short term uptick likely to be followed by further downside. While the technical indicators are oversold, a drop off in momentum may serve to dampen (to put it lightly) the bullish spirit of those who hear UK bank’s shares screaming ’buy me, I’m at a four year low!’

Fundamentally, the banking sector is looking really rather beaten up. A potential saviour in higher central bank interest rates does not look to be forthcoming and now that the Bank of England has tightened the thumbscrews with tighter regulation and a fresh set of stress tests in 2016, not to mention getting everyone even more worried about Brexit, we see downward pressures remaining.

An Accendo trading account allows you to hedge an existing share position against short term market volatility. To find out more, click here.

Do you think shares in Barclays will rally up to the highs of 340p or fall beneath the lows of 147p?

Broker Consensus (Source: Bloomberg, 1 Apr)

Consensus remains bullish, and while 100% of target prices are above current levels we note that they’ve been steadily decreasing since end-Jan. Also, investors have likely been encouraged by advisors to cling on for the 4% dividend yield to which management took the hatchet earlier in March. At Accendo Markets, we don’t tell you what to do.

7) Ashtead Group (AHT)

Day-to-day, Ashtead Group shares have been trying hard to establish themselves in a 2-month rising channel. However, the 50-day moving average is proving a tough hurdle. Again, we’re seeing a reduction in volume and overbought technicals. Longer term (as shown on the above chart), things look a little more bullish with a 5-year rising trend line teasing shares away from support at £7.50. With Ashtead about 80% exposed to the US construction market, Ashtead represents a convenient platform on which to bet on developments in the US economy – which looks to be in relatively good health if employment numbers are to be believed.

This is also one stock that might show at least some immunity to Brexit-sponsored fear mongering!

Do you think shares in Ashtead Group will rally up to the highs of 1200p or fall through support below 800p?

Broker Consensus (Source: Bloomberg, 1 Apr)

A clear bullish bias is evident among the small group of brokers covering this stock. 14 of 17 brokers have either buy (11) or hold (3) ratings. Of those brokers giving price targets, 12 out of 13 are looking for upside with the most bullish seeing a staggering 74% - that’s after shares have already gone up by 295% since 2012 lows! Contrast that with the most bearish broker seeing just 11% downside (while not giving an explicit ‘sell’ rating).

8) easyJet (EZJ)

easyJet and its fellow airlines have benefitted from the collapse in oil prices, but are also sensitive to geopolitical events and others that affect people’s desire to travel internationally. Unfortunately, that does include terrorism. Despite such headwinds, EZJ shares look comfortable enough in their early 2016 trading range, even though upside may be getting capped by the recent crude rally.

All this said, we’re approaching summer and passenger volumes should be set to rise.

Do you think shares in easyJet will rally back to the highs of 1900p or fall towards 2014 lows of 1200p?

Broker Consensus (Source: Bloomberg, 1 Apr)

Brokers are again bullish with 3 sell ratings, 8 holds and 17 buy ratings on the stock. The current average target price sits some 23% above current levels. Note Goldman Sachs looking for 56% upside, while the most bearish broker is looking for 5% downside. You can be kept up to date on all developments surrounding easyJet shares by trialling our no-nonsense research and trade ideas for two weeks.

9) Royal Bank of Scotland (RBS)

RBS; 3-month, daily

RBS; 3-yr, weekly

Like Barclays, Royal Bank of Scotland finds itself also languishing around levels not seen for 4 years. The difference is that it’s got a little further to fall to hit its own historic low point just south of £2. The bailed out bank (peer of LLOY) recently paid £1.2bn to its major shareholder, the UK treasury, to buy itself out of the Dividend Access Share (DAS) – something created by the government after it bailed out the bank in 2008. So, can investors now expect RBS to resume paying its dividend? Er, not until 2017 at the earliest - the bank is yet to return to profitability, and now has a further £1.2bn to go to get there!

What’s more, at the end of March Royal Bank of Scotland unveiled a £5.2bn bond buyback which, while yet another outflow to deal with, is not at odds with what sector peers are doing and will help reduce the cost of servicing debt. Put it this way, with all that cash no longer in its pockets, the bank’s even poorer than it was at the beginning of the year, but on the flipside, at least RBS’s trousers are less likely to fall down.

Do you think shares in RBS will rally back to the highs of 400p or fall towards 2012 lows of 150p?

Broker Consensus (Source: Bloomberg, 1 Apr)

Brokers are neutral to bullish on RBS. Note Day by Day’s ‘sell’ rating of 3 Feb has been hit, while 18 subsequent ratings have been either outright bullish or neutral with Jefferies the unabashed bull seeking 122% upside.

How can you take advantage of these potentially attractive share price moves?

Whether you see UK stocks going up or down in Q2 2016 or indeed for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

Buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see purple box above left), while the same exposure via a CFD requires about £500 plus commission (see green boxes above right). If a trader invests in British Land, one would assume she believes the share price is likely to move in her favour. After considering the ‘worst case scenario’ and assigning funds to cover it,  the trader may conclude there’s little point in exposing the full £10,000  to the BLND shares - some of that capital could be put to good use elsewhere in the markets.

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure.

The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into an Accendo trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios click here.

How Accendo Markets can help you

We won’t tell you what to do - it’s your call whether you buy or sell. Our aim is to provide the help you need, if you need it. We’ll highlight opportunities which may be profitable to you, the investor, and assist you in making your own trading decisions. Our approach focuses on these 3 elements:

1. Education - not obligation
2. Observations - not recommendations
3. Assistance - not persistence

Our unique, award-winning service provides you with the help and tools you need to make appropriate trading decisions in the financial markets, both to grow and protect your capital. Just imagine how you’ll feel when you’re confident enough to make you own investment and trading decisions, rather than blindly following those of an expensive advisory broker who really has no better chance of calling the market than you anyway.

Before taking a position in the Index or Stocks, be sure to contact Accendo for…

• Updates - How does the index or your preferred stock look in terms of investor sentiment? News and broker updates can emerge daily affecting share prices. Optimism can switch to pessimism in the blink of an eye depending on what’s going on around the world.
• How to use CFDs and Spread Bets to maximise your profit potential.
• How to use the tools available to minimise the risk involved