Aston Martin: should you buy the shares at this level?

With the luxury car maker plunging in value, our chartist assesses price targets for its shares.

Aston Martin Lagonda (LSE:AML) 

When we last reviewed Aston Martin Lagonda (LSE:AML) in January, we proposed a pretty foul drop potential of 170p eventually.

As the share was trading around the four quid level, such a drop ambition appeared positively insane.

But with Covid-19, the mighty fell and, in Aston's case, our 170p was to prove a brief one-month moment in time as the market had a greater punishment in store.

• Aston Martin shares: hope for the best, expect the worst

The share price also supplies a pretty solid example of what we mean, when warning of a movement breaking target on an initial surge.

In this scenario, a break, especially closure, below a target (in a dropping price example) tends to nullify any 'what happens next', if the target level given is a secondary.

In plain English, anyone planning a super bounce from 170p was liable to be disappointed, as any rebound was liable to prove fairly short-lived.

This sort of thing occurs too often to be ignored, with the result being we rarely trust any share (in a falling market) when a major drop target is broken.

There is an important caveat.

What about if the target is broken in the first second of trade? Should this occur, we pay very close attention to what happens next, thanks to opening second downward spikes often being the harbinger of surprise price recovery.

Our rule of thumb allows 90 minutes for a price to exceed the level at which the market is showing the day opening at. If this is the case, continued recovery is probable.

Aston Martin

As for Aston Martin, the share price certainly has some issues as it is presently trading in a region where we can calculate 'ultimate' bottom at 20p.

We are unable to calculate below such a level and suspect below 27.5p shall signal, hopefully, a final surge downward.

But there is a chance the recent low of 27.5p shall be deemed 'close enough' to indicate some residual strength in the price. This would result in the immediate situation where recovery next exceeding 40p should prove capable of returning the price to the 55p level initially.

If exceeded, our longer-term secondary calculates at 87p and realistically, we shall require stirring the tea leaves again at such a point.

Closure above 87p does certainly allow 142p to make an appearance, but we never trust price targets where the calculation dumps a share price in the middle of a prior gap movement.

We are unable to think of a single instance when this sort of scenario proved viable as a miracle recovery will generally 'cover the gap' with a flamboyant movement. Or fizzle out completely.

Who knows, perhaps Silverstone hosting two Grands Prix (behind closed doors) in July shall provide Red Bull/Aston a chance to shine.

Source: Trends and Targets. Past performance is not a guide to future performance.

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of interactive investor.

All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang, or interactive investor will be responsible for any losses that may be incurred as a result of following a trading idea.