JJB saves on the line

JJB Sports reported a jump in sales of replica kit during football's Euro 2004 championships. Unfortunately, it wasn't so much a cup-final victory as a second-round play-off defeat as details began to emerge last week.

In fact, replica kit sales substituted higher margin revenues from existing areas, leading to flat gross margins year on year. Traders took the news badly, selling shares from the previous days level of 170p all the way down to 259p.

Critically, JJB's major technical support-line saved shares from further losses. Intersecting at 252p, this technical titan coincides precisely with the intra-day low point. The question is, will this support be strong enough to avoid further losses? Technical analysis reveals a positive outlook.

January saw JJB shares open the year at 235p. Shareholder exuberance ahead of the busiest sporting year in memory, sent values soaring to an April 1st high point of 326p.

But it turned out to be a cruel April Fools' Day trick for investors. Shares collapsed straight to 247p as markets began to cool to the likely profitability of both the Olympics and Euro 2004.

Technically this drop was very important. It created the second significant low price, which when combined with January's opening at 235p, gave a solid support line.

Knee-jerk buyers stepped in, rallying shares last week to above 280p, and offering investors renewed hope of further gains. And that's when the disappointing half-year figures were released.

Despite encouraging comments from the CEO regarding future expansion plans, shares slipped by almost 5% to their 259p close. But the intra-day low of 252p was hugely significant.

Despite aggressive selling pressure, JJB shares held above the technical support line at the same price, and now have a real chance of consolidation followed by strength.

So where to next for this chain of High Street sports shops? Maybe not to the Premiership! However, as long as shares survive above 252p, the outlook remains positive. Buyers should carry the stock back towards 270p, where a more positive shift in broker sentiment could allow an assault on 300p.

JJB shares have already been saved on the line once. However, on the downside, if they fail to defend against further attacking moves, shares will penetrate support and collapse straight to 225p.

Stockwatch is written by William Akerman of Quantigma. For more views on techical analysis, go to www.quantigma.com

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