On a fundamental level, I have believed Dixons Carphone (LSE:DC) to be undervalued ever since I covered the company back in September at £1.68. In December, the Interim Results shone a further positive light on the business as far as I was concerned; my conclusion being the over-50% drop in the share price was overdone. Since then, the share price rose to over £2 but the Relative Strength Index (RSI) indicated it was heavily overbought. This month, the share price has been consolidating in a range between £1.90 and £2 and over that period the RSI has cooled off, currently sitting at around 50. Encouragingly, the RSI is showing signs of a continuing uptrend and today saw a strong bounce off £1.90 support as well as a respect for the RSI support line. Other positive signals are the recent crossing of the 50 DMA above the 100 DMA. This may well be followed by its more infamous sibling, the Golden Cross (50 over 200 DMA). Also, a Symmetrical Triangle pattern has been developing over the past six weeks ensuring a decision about price direction will come soon enough. Generally, this pattern indicates a continuation of a trend, which would be positive in this case. The gap down in August last year from £2.35 might be a good initial target as trading folklore does suggest gaps in price action almost always get filled!
Author: Stuart Langelaan
Disclosure: The author of this piece owns shares in the company written about above