Last week, the benchmark FTSE All-Share Index (.FTAS) started on a negative note and made a low of 3762.96 on March 07, 2022. However, the index recovered sharply from the lower levels and settled at 3988.90 with a decent gain of ~2.69 percent for the week ending March 11, 2022. The recent week also started on a positive tone and prices are trading around the 4000 level. On the technical front, prices are trading below an upward sloping trend line breakout level, indicating a downside direction. On a weekly chart, the leading indicator RSI (14-period) is hovering around mid-point and is currently at 44.22 levels. Prices are sustaining below the trend-following indicators 21-period SMA and 50-period SMA, further supporting a negative stance.

The market sentiments were supported by improved GDP monthly estimate numbers released during the week. As per the Office for National Statistics, the GDP in January 2022 is increasing by 0.8% after falling by 0.2% in December 2021 which is now above the pre-coronavirus level (February 2020). However, the ongoing geopolitical scenario kept the pressure on the indices.  

Global Markets Wrap-Up

Wall Street continued the bearish run last week as well and the two benchmark indices ended in red. The S&P 500 settled at 4204.31 with a loss of ~2.88 percent, while NASDAQ Composite Index settled at 12843.808 with a loss of ~3.53 percent for the week ending March 11, 2022. An increase in the US weekly unemployment claims numbers to 227,000 from 216,000 (revised level) coupled with the ongoing war between Russia and Ukraine acted as the catalysts for a downside direct. 

Having understood the US market performance over the past one week, taking cues from major global news, and based on our technical analysis of the FTSE All-Share Index (.FTAS) for the upcoming week, now let us have a look at the two LSE listed stock picks from the technical standpoint. Noted below are our recommendations based on generic insights, entry price, target prices, and stop-loss for Melrose Industries PLC (LON: MRO) and Bakkavor Group PLC (LON: BAKK) for the next 2-4 weeks duration:

Melrose Industries PLC 

Melrose Industries PLC (LON: MRO) is a UK-based consumer goods conglomerates company focused on acquiring manufacturing businesses. Noted below are the key price indicators for the stock:

Price Action Analysis (on the Weekly Chart) 

MRO's prices recently started to move upside after taking the support from a crucial level of GBX 108, indicating the possibility of an upside reversal hereon. The recent upside movement in the stock is backed by volumes as well, further supporting a positive bias. Now the next important resistance level for the stock appears at GBX 150 and prices may test this level in the short-term (2-4 weeks). A further movement above GBX 150 may extend buying in the stock.  

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI is recovering from lower levels and trading at 36.05, indicating a positive momentum build-up at the lower levels. The volumes also seem supportive of an upside movement. However, the CMP is above the trend-following indicators 21-period SMA and 50-period SMA and may act as the resistance levels.

Financial Summary:

Summary of the Key Financial Metrics for the past four years for that Melrose Industries PLC is as follows:

General Recommendation:

As per the above-mentioned price action and technical indicators analysis, we can conclude that Melrose Industries PLC is looking technically well-placed on the chart, and we have a ‘Speculative Buy’ rating on the stock. Investment decision should be made depending on an investors’ appetite on upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. The summary of our recommendation is as follows:

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Bakkavor Group PLC

Bakkavor Group PLC (LON: BAKK) is a UK-based food processing company engaged in manufacturing freshly prepared foods in the UK, the US, and China. Noted below are the key price indicators for the stock:

Price Action Analysis (on the Weekly Chart)

BAKK's prices recently started to move upside after taking the support from a crucial level of GBX 105, indicating the possibility of an upside reversal hereon. The recent upside movement in the stock is backed by volumes as well, further supporting a positive bias. Now the next important resistance level for the stock appears at GBX 126 and prices may test this level in the short-term (2-4 weeks). A further movement above GBX 126 may extend buying in the stock.  

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI is recovering from lower levels and trading at 36.20, indicating a positive momentum build-up at the lower levels. The volumes also seem supportive of an upside movement. However, the CMP is above the trend-following indicators 21-period SMA and 50-period SMA and may act as the resistance levels.

Financial Summary: 

Summary of the Key Financial Metrics for the past four years for Bakkavor Group PLC is as follows:

General Recommendation:

As per the above-mentioned price action and technical indicators analysis, we can conclude that Bakkavor Group PLC is looking technically well-placed on the chart, and we have a ‘Speculative Buy’ rating on the stock. Investment decision should be made depending on an investors’ appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. The summary of our recommendation is as follows:

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include an update on employment, inflation, GDP, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the FTSE All-Share Index and listed stocks’ prices.

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.60:1.00), however, returns are generated within 2-4 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendations provided in this report are solely based on technical parameters, and fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, and social and political instability risks etc.

Note 1: Investors can consider exiting from the stock if the Target Price mentioned as per the technical analysis has been achieved and subject to the factors discussed above. 

Note 2: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50- period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Risk Reward Ratio: Risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~60% Stop Loss of the Target 1 from the entry point. 

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. We suggest Investors to Trail the Stop-Loss as per the aforementioned levels if the stock price achieves more than 50% of the Target 1. Investors should consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 50% of the Target 1. 

The reference date for all price data, volumes, technical indicators, support, and resistance levels is March 14, 2022. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

GBP: British pound sterling

GBX: British pence sterling

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

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