The CFDealer: two stocks to buy, one to sell

One cannot complain: two long ideas receiving takeover approaches within the space of one week (SSL International and Dimension Data – see Update below), albeit I had no inkling that these two events were going to happen. At least the system I use is working, although you never know when it will work against you.

Two bullish ideas and one bearish idea for this week. The criteria has been slightly altered as there are too many positive signals on individual stocks. In all cases the eight day simple moving average is the pink line and the 20 day simple moving average is the turquoise line.

Before we start, many commentators are suggesting we have gone up too much too quickly given that only four weeks ago, things were looking very different. The data we have seen, both corporate and economic, from the US has generally been accepted to be a net positive, so I am inclined to think that the recent but modest deterioration in the markets is nothing more than a consolidation move rather than anything more sinister, hence why there is a long bias in this week’s column.

The first bullish idea comes in the form of life insurer Aviva:

The market’s upswing has undoubtedly improved the outlook for the insurer. The stock has recently broken through the intermediate resistance level of 359-360p, which should now hopefully act as support, assuming market conditions prevail. There is scope for some retracement towards 320-326p but on the upside 400p and, beyond that, up to 425p look to be plausible resistance points.

It has been a considerable amount of time since a pharmaceutical/biotech company has featured in this column but since the expected Sanofi/Genzyme deal is expected to be announced soon, it might play into the hands of holders of BTG (BGC), the FTSE 250 intellectual property company that specialises primarily in life sciences:

On the upside the stock looks to have potential to test 240-245p in the short term. A close above here could lead to a break –out towards 450p, previously reached in 2003. This can be a highly volatile stock, so this is not for the faint-hearted. Support could be as low as 180p on a bad day, so timing might play its part as to how successful this idea turns out.   

On the downside keep an eye on support services and construction company Carillion (CLLN):

There is upside scope for the stock to test 325-335p, which ideally would be a better place to open bear positions but otherwise the beginning of a new down-trend could be in sight with 280p as the initial support and through here, possibly down to 240p in due course.