Chart of the week: A blue chip to buy or sell?

Markets flag changing trends before most are aware of it. Chartist John Burford tells us what this share price is saying.

This is one of Britain's oldest property companies and is a core holding among many investment groups and funds.  But is it worth holding now for the private investor?  Of course, most funds are pretty much married to the current 4.7% dividend yield and will continue to hold through thick and thin – and the share price plunge of 40% between 2015 and 2016 was certainly on the thin side.

Can we expect some similar thin times for this year – and next?

The share prices of our domestic property companies depend heavily on the state of the local property markets in the UK, of course.  The Credit Crunch of 2007 – 2009 devastated many such companies as property values plunged.  Here is the British Land Co chart from 1999:

Source: interactive investor      Past performance is not a guide to future performance

For followers of the Elliott Wave theory, this chart is a textbook case of five up to the 2007 high at £14.50 and a five down to the post Credit Crunch 2009 low at £2.44 for a staggering loss of 83%.  That march up and then down is what I call a Grand Old Duke of York pattern. Who said property investment trusts were boring?

But since the 2009 low, shares have recovered somewhat but to me, appear vulnerable to a resumption of the sell-off.  This is my reading of the weekly chart of the recent period off the wave 2 high of March 2015:

Source: interactive investor      Past performance is not a guide to future performance

The rally carried to the precise Fibonacci 50% retrace of the entire move down off the 2007 high, which is a typical turning point. And the decline off that high is a clear impulsive five down that took it to the July 2016 wave 5 low at £5.36.  And that produced a solid momentum divergence (red bar) that heralded a decent recovery phase.

And this is precisely what has transpired – but note the waves of the past two years have been highly overlapping, and that strongly suggests a corrective behaviour (main trend down), not an impulsive one (main trend up).

But when the market rallied to the £7 level in late May on a momentum divergence and began a strong move down, I had my purple wave 2 high in place and could project the shares were at the start of a third wave down.  And third waves are usually the strongest of all.

To my mind, the weak recovery off the 2016 lows is somewhat surprising as property has been pretty buoyant – until recently, that is.  But now with the retail sector’s difficulties reaching the headlines, perhaps that weak recovery in BLND was telling us something months ago.  After all, that’s what markets do.  They flag changing trends before most are aware of it.  It’s the Wisdom of Crowds effect at work.

I expect the lower wedge line to be broken in due course and a move to the £5 area is not out of the question this summer.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.