Still opportunities to cash in on Murdoch magic

Still opportunities to cash in on Murdoch magic

RUPERT Murdoch might be in his 80s but none of the old magic that took News Corp from the sleepy backwater of 1950s Adelaide to the centre of the world media stage and the movie business has worn off.

Sure, his reputation lost some lustre with the phone hacking scandal at his British papers and he is also taking the axe to staffing levels at his Australian media outfit, but in the middle of it all he announced plans to split the company into separate publishing and entertainment operations, sending the market into raptures and pushing News up 10 per cent in a couple of days.

There’s been change in the wind for News for a while as this week’s analysis by certified financial technician and Australian Technical Analysts Association member Mark Umansky shows.

News peaked at a record high of $52 in September 2000 and fell until mid-2003. Then things turned around a little and News reached $30.40 in the boom running up to the global financial crisis.

It hit a post-GFC low of $11.23 with the market bottom in March 2009 and then started to rise. Umansky identifies News as entering a two-year congestion phase late in 2009 where buyers and sellers slugged it out in a relatively narrow price band.

That congestion period proved to be what technical analysts see as an accumulation phase (savvy investors buying) at point H2 on the chart with the stock at $16.30. This represented a “higher low” than the previous bottom at H1 ($15.78), a sign of growing buyer support in expectation of more rises.

There are two other clues that H2 was a signal that sentiment had turned positive. H2 sat above the red downward trend line that had come off the 2000 high of $52 and also above the green 13-quarter moving average line.

This analysis shows how a good stock can defy market noise. Once sentiment changed in September 2011 the price continued to rise despite the Greek crisis and the hacking scandal, breaking through the two-year resistance level at $18.50. It went on to break $20 well before Rupert pulled last week’s rabbit out of the hat.

This is how you would have turned the changing News sentiment into money using technical analysis. The buy-in point would have been just above $18.50 with a stop loss in place just below H2 at $16.30. Such a strategy would have resulted in a downside risk of $2.20 per share, and upside reward of $11.90 using the previous pre-GFC peak of $30.40 as a target.

That represents a reward/risk ratio of greater than five times (the potential gain is more than five times the potential loss), an attractive proposition for investing, according to Umansky.

Given the News split is 12 months away there could be more potential for investors with the current structure. If the uptrend continues there may be resistance around $34, which is, Umansky says, just below its 50 per cent retracement level using the Fibonacci number series calculated between the $52 high and the $11.23 low.

These two points converging means stronger resistance but if News breaks through permanently there’s a prospect of further gains.

This column is not financial advice.

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