There can be no doubting the power of news releases, whether unbiased and factual, or based largely on supposition, to motivate market participants, and influence company price action.
This daily candlestick chart (Chart 1), extending over the past year, illustrates this point. At the AGM 3/11/17 the company forecast a return to profitability in the 2H 2017/8 following substantial restructuring of its operations over the past two years to adapt to the needs of the new digital age.
The market response since the AGM has been extremely positive with the share-price lifting from support at 17 cents (2) to first create resistance at 23 cents (1), and then about 7 weeks later in early 2018, to decisively break through this level and reach a high at 32 cents.
Such close correlations between positive news releases and leaps in the share-price lead many to rely on media sentiment for their trade planning. Technical analysts have long advocated however, against jumping to conclusions prematurely, urging the study of the evolving charted market response, before making their minds up as to what they should do.
One good reason for delaying action is that subsequent news releases may have conflicting information and/or opposing viewpoints. Thus on the 6th February 2018 Samira Sarraf of the Australian Radio Network (ARN) reported that Danish Software Company Milestone Systems had commenced legal action on the 11th January 2018, to be heard on the 28th February 2018, to have Hills Limited wound up.
Should a satisfactory settlement of this dispute resolve the matter by the end of the month, as expected, further gains may lie ahead for Hills.
From its inception in 1945, Hills has long been regarded as an iconic Australian manufacturer of innovative laundry and gardening products, including the famous Hills Hoist rotary clothes line, with the share-price reaching an all-time high in August 2007 prior to the GFC, of A$6.72.
Despite its steady profitable heritage, in the more than a decade since then, it continued to lose money for its loyal retail investors. with the share-price collapsing to a low of just 15 cents six months ago. This is illustrated in the 20 year monthly chart of Hills below (Chart 2). There has now been stable support in the past year, with technical evidence suggestive of accumulation of stock at 17 cents.
Following reconstruction of its operations over the past few years, cash burn has diminished and it now has a portfolio of viable inter-related businesses, in four departments.
- Security & IT solutions
- Communications and satellite
- Interactive health-care solutions.
Now with the opening of its own warehouse adjacent to a state of the art sales and service centre at Seven Hills in Sydney saving an estimated A$1.5 million a year, and a pipeline of contracts, the expectation is for sufficient profit to return to the payment of dividends in Y 2019.
The Multiple Moving Average technical indicator devised by Daryl Guppy is shown above in Chart 3 for Hills Limited. The blue lines show short-term price fluctuations created largely by trading activity, whilst the more steady red lines are created by the considered migration of longer-term investors into and out of the stock.
In the past year there have been approximately 4 months of decline, followed by 5 months of sideways movement until the spike upwards in the last 3 months. Of most relevance for retail investors has been the diverging upwards trajectory of the six longer averages.
Prudent investors might well consider it wise to wait until the share-price exceeds the previous high before entering. However any further upwards movement would create a double bottom and be well clear of support at 23 cents.
At this time I do not have shares in Hills. Readers interested in this stock should consult their stock-broker or financial advisor for guidance.
Categories: Chart Analyses, Company review
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