Friends Provident takes a battering

INVESTORS are waiting with bated breath for Friends Provident‘s release of third quarter results tomorrow. And having been battered by recent negative broker sentiment, most are now hoping for a revival of fortunes for the insurance giant. However, from a Technical analysis perspective, there appears little chance of an improved outlook.

Looking at the charts, an instant pattern emerges. Having made gains at the beginning of the year, Friends Provident peaked in March at almost 160p. But investor profits were short-lived as stock turbulence and a new negative trend emerged.

Violent swings in price first pushed shares lower to 135p and then higher again to 155p. But crucially, every strong move up in price reached slightly lower that the previous strong move up. And every strong move down reached slightly lower than the previous strong move down - a classic ?bear channel‘ pattern.

The shares‘ latest peak came in October at 147p, failing to break the psychological 150p resistance zone. Added to this technical failure came a downbeat sector note from broker JP Morgan. Commenting that Friends Provident is trading on an above average cost base, JP Morgan advised clients to take an 'underweight' position. And once again the subsequent dip has pushed prices down by over 6%.

So what does the future hold for Friends Provident? If history is any guide to the future, shares should fall to new lows.

Initial targets intersect at the old September low of 131p. If breached, shares will drop to 128p, before making new lows beneath August 125p low.

At 120p shares will reach the bear channel support line, underpinning values in the short term, and probably resulting in a short term bounce back up.

The long term trend is unquestionably still down, as Friends Provident has underperformed the FTSE 100 Index on a relative basis since April. Only really good news tomorrow will offer hope of revival, and unless shares rally through the channel resistance line currently at 147p, the emphasis remains negative.