Trading British American Tobacco: Overbought + Poor Buy/Long Reward-To-Risk

Lester Davids
Jun 18
4 min read

Research Notes For 16 to 20 June > https://www.unum.capital/post/r1620june

Trade Local & Global Financial Markets with Unum Capital.

To get started, email tradingdesk@unum.co.za

Overall Trading Considerations for British American Tobacco (BTI):

Strong but cautious short-term outlook: The 14-day trend is "Very Bullish" with buyers in control. However, the 7-day trend is "Overbought," and the model advises not to chase the price, as a failure to hold highs could become a short/sell target.
Slowing medium-term momentum: The outlook for the next 2 to 4 weeks shows a strong upside move, but the momentum is slowing down as sellers become active.
Unattractive long-term position: For the long term (5 to 8 weeks), the model gives a clear warning: "Do Not Enter Long," stating that the risk-reward is unattractive.

In summary, for BTI, the current view is bullish in the short term, but with a strong need for caution due to overbought conditions. This upward momentum is expected to slow in the medium term, and the long-term outlook is unfavorable for new long positions.

The model points to a potential for continued short-term gains for the share price, but with increasing risk and a less attractive setup over the medium to long term.

Previous Post (Friday 06 June)

Here's a breakdown of the current price action:

The 7-day trend is indicated as "High Bullish Momentum / Approaching Overbought," while the 14-day trend is "Very Bullish."
Comparison: Both the short-term (7-day) and slightly longer short-term (14-day) trends indicate upward momentum ("High Bullish Momentum / Approaching Overbought" and "Very Bullish" respectively). This suggests a consistent buying pressure across these timeframes. The "Very Bullish" 14-day trend reinforces the "High Bullish Momentum / Approaching Overbought" 7-day trend, indicating that the recent strength is part of a broader upward movement, but with a note of approaching overbought conditions in the very short-term.

Potential Trading Approach for BTI:

Short Term (Approximately Next 1 to 10 Trading Days): The model notes, "Very Strong Move Buyers In Control But Don't Chase-May Fail At Attempt To Hold The Highs-If It Doesn't Hold Then The 8-EMA May Be A Short/Sell Target."
- Approach: While there are very strong buyers in control, avoid simply chasing the price higher. Look for potential short-sell opportunities if the price fails to hold the highs, targeting a move back down to the 8-period Exponential Moving Average (EMA).
Medium Term (Approximately Next 2 to 4 Weeks): The model indicates "Very Strong Move Buyers In Control But Don't Chase-May Fail At Attempt To Hold The Highs-If It Doesn't Hold Then The 8-EMA May Be A Short/Sell Target."
- Approach: The medium term suggests that the recent bullish activity is very strong, but with the same caution against chasing and a potential short/sell target at the 8-EMA if highs aren't held. This supports a bullish bias over the next few weeks but advises tactical entry.
Long Term (Approximately Next 5 to 8 Weeks): The model states, "Very Strong Move Buyers In Control But Don't Chase-May Fail At Attempt To Hold The Highs-If It Doesn't Hold Then The 8-EMA May Be A Short/Sell Target."
- Approach: The long-term perspective indicates very strong buyer control, but it reiterates the same caution as the short and medium terms: avoid chasing, and be aware that failure to hold highs could lead to a short/sell target at the 8-EMA.

Overall Trading Considerations for BTI:

Consistent bullish momentum: Both short and slightly longer short-term trends are bullish, supporting upward price action, with a note of approaching overbought conditions.
Short-term caution: Despite the buying pressure, the model advises against chasing and suggests looking for short-sell entries if highs are not held, with the 8-EMA as a potential target.
Medium-term and Long-term consistency: Both medium and long-term outlooks echo the short-term sentiment of very strong buyers but with the same critical caveat about not chasing and the potential for a retracement to the 8-EMA if highs aren't maintained.
In summary, for BTI, the current view is bullish across short to long terms, driven by very strong buyer control. However, traders should be cautious of potential overbought conditions in the very short-term and the recurring warning across all timeframes to avoid chasing the price. Tactical short opportunities may arise if the stock fails to hold its highs, targeting the 8-EMA.

Previous Post (04 April): Higher By 50% In 16 Months

The extract below is from a note to clients on Wednesday, 06 December 2023 at 53198c, highlighting both a manual view (channel) as well as the price action model reading. Within just 16 month, the share has gained 51% and trades above R800, it's highest level since January 2018.

This post is a continuation of the commentary on the share at various points over the 13 months (beginning December 2023).
It highlights both the manual views and automated tool used to take advantage of opportunities on both the buy (long) and sell (short) side.
The share currently trades at a 2-year high.
Well done to clients who may have capitalized on these opportunities.
At current levels, the model reading is as follows:

Previous Post: A Useful Tool For Uncovering Opportunity & Assessing Reward-To-Risk: BTI As An Example

Monday 25 November 2024 (Time: 11h04)

Are you taking advantage of the tools provided?
On the back of a the model reading on Friday 18 October (end of day) : "The reward-to-risk is becoming attractive for a small buy/long position", BTI has rallied from R600 to R680
Both the previous long and short side posts are shown below (scroll down for the previous posts)
Below is the reading for Fri 18-October, as mentioned above:

Previous Post: Get Ready To Trade: British American Tobacco

Date: Monday, 07 October 2024

Time Published: Pre-Market

Ticker: BTI

My model called for a pullback from overbought conditions, citing an unattractive reward-to-risk on the buy/long side.
Since then, the share has retreated from R690 to below R610
Next Best Probability Entry Range is shown below.

Previous Post: Thursday, 05 September 2024

Real-Time: 14h00

Ticker: BTI

Previous Post(s)

Real-Time: 10h53

Ticker: BTI

BTI has been a profitable medium term trading opportunity for clients of Unum Capital. At current levels, the high bullish momentum conditions benefit existing shareholders however, it may also be an opportunity to reduce into strength.