Pro­ceed with cau­tion

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­week.co.za

Di­ver­si­fied con­glom­er­ate Bid­vest, which has seen its share price de­cline nearly 13% since the start of the year, warned at a re­cent in­vestor day that mar­ket con­di­tions have de­te­ri­o­rated “as re­flected in low­ered busi­ness and con­sumer con­fi­dence”.

Bid­vest, which spun off its in­ter­na­tional food ser­vices busi­ness into Bid­corp last year, is a South African com­pany with op­er­a­tions in the au­to­mo­tive, com­mer­cial prod­ucts, elec­tri­cal goods, fi­nan­cial ser­vices, freight and ser­vices sec­tors, as well as in the of­fice and print space. It also owns stakes in a va­ri­ety of other busi­nesses, in­clud­ing Co­mair and Ad­cock In­gram.

It said on 8 June that it ex­pects more chal­leng­ing trad­ing con­di­tions for the rest of the year due to the “volatile so­cio-po­lit­i­cal out­look and the weaker than ex­pected macroe­co­nomic en­vi­ron­ment”. How­ever, the qual­ity of its earn­ings re­mains high, Bid­vest said, and its an­nu­ity in­come-type busi­nesses de­liv­ered “solid re­sults”. Fol­low­ing the un­bundling of Bid­corp, Bid­vest gapped up­wards, trig­ger­ing the third phase of its long-term bull trend, with the share price spik­ing from 10 275c/ share to 18 375c/share.

But hav­ing reached a ceil­ing there, and with the three-week rel­a­tive strength in­dex (RSI) neg­a­tively di­verg­ing, cau­tion should be ex­er­cised.

How to trade it: If Bid­vest fails to re­cover beyond 17 200c/share, alarm bells should sound. Key sup­port is at 14 650c/share, and Bid­vest may con­firm a dou­ble-top at 18 375c/share on down­side through 14 650c/ share. The bear­ish tar­get would be at 10 925c/ share. Since gaps are usu­ally closed, losses could ex­tend to 10 275c/share – so as to close the May 2016 up­ward gap. Oth­er­wise, go long above 18 375c/share as the up­side ob­jec­tive would be at 22 100c/share.

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