Is Astra nearing a tipping point?

Can drawing lines on charts tell you where a share price is going? Because there’s a very interesting graph I’d like to show you.

My colleague Tim Bennett has written about ‘technical analysis’ several times in his Strategy piece in the magazine (see more on this here: Just what is charting all about?) But you don’t need to read all that to get the picture on AstraZeneca (LSE: AZN).

We tipped the giant UK drug maker at around 2,800p both in October 2009 and also in February this year. And the shares have since risen by almost 20%.

Sure, there’s plenty of ‘good’ news surrounding the company at the moment, both on new products and settling old lawsuits. But where are the shares going next? This chart may provide the answer.

Source: Bloomberg

Technical analysis ignores news. It focuses only on price action. During this decade, Astra has been in a trading range, shown by the parallel red lines in the chart, between around 1,750p and 3,500p.

After a strong uptrend in 2010, the shares are nearing the top of this range again. And as the shorter upward sloping red lines show, the price is fast reaching a critical ‘resistance’ level where three of the trend lines meet. This also equals a previous peak.

In other words, another 100p/share (3%) rise within two months could carry Astra to 3,450p. There it would be on a current year p/e of just 8.6 and prospective yield of 4.5%, according to consensus forecasts. So it would clearly still be cheap. In the longer run, I’d expect the price to break into new high ground and to go a lot higher.

But for those with a shorter-term outlook, a move to 3,450p by November could well be the time to take a handy quick-fire profit.