NZME profit taking opportunityThanks for viewing,
I am not sure if this is of wide appeal. NZME is a media Company that caught my attention last year due to the share price declines having appeared to have out-paced any revenue declines in an industry in a global slow down-trend. I was eyeing the equity at the 0.40 level at the start of the year but felt there was still another leg down - just based on Elliot Wave.
New Zealand has done an exceptional job of controlling the health crisis, and gained a lot of notoriety, but is in a wait-and-see position now as the rest of the world are facing some rather serious looking health and debt issues. There is also the question of opening up the economy to travel again, no idea when that can happen - although I view NZME as somewhat insulated from these issues.
In march 2020 NZME was down over 82% from its post IPO 2017 highs and got as low as $0.18 a share. Due to the big price drops it had a rather juicy looking potential dividend, should dividends remain at or close to 2019 levels. However, NZME had already suspended its dividends due to a very high debt level. But I still saw a bounce potential, as media Companies are generally thought to be 'recession resistant' due to Companies normally increasing marketing budgets in a recession. I am getting the impression that this has not eventuated in this case, as everyone is just in survival mode. Anyway, despite a 13% drop in revenue in the first half of 2020, net profit was up, and they posted a very strong reduction in their debt position - hence the bounce.
Expectations; after such a long and deep price collapse I do not expect NZME to set heading for higher highs. A base needs to be formed. So I see a 3 wave A that is coming to and end, and will be followed by a price decline and a re-test of the March lows (even though I don't expect a lower low I have decided to take profit). After the low re-test, we can consider the chance of a proper retracement up to the $0.70 level, for example. Despite some good news NZME has some big problems like;
- A significant majority of their assets are "intangible assets" from their newspaper and radio brand acquisitions, so if there are significant write-downs in these assets that could materially affect the balance sheet. Considering that when these assets were acquired, the world was a much different, and likely more optimistic place - it may well eventuate that the purchase prices don't make a lot of sense in today's context. That is just my feeling, based on the vulnerability of this organisation to such a scenario.
-General down-drafts in the newspaper and radio sectors, despite their investments in streaming and online delivery there are still big challenges.
- There doesn't actually need to be bad news from NZME for the price to decline now. I am expecting a more generalised draw-down of global equities. If that view holds, NZME may well be caught in the trend regardless of how well they are doing, as people unlock untapped collateral. I expect NZME to return to paying dividends either in late 2020, or in 2021, and that will help.
I see rather strong technical reasons to sell lining up;
- The 1:1 extension of the June 2020 high (of $0.35 )( has been exceeded - at $0.46. Wave A often does a 1:1 of the first wave (April to May) up.
- There is rather strong bearish RSI divergence forming - when higher highs in price are displayed as lower highs in the RSI. I pay attention to this especially when the RSI is already "overbought" i.e. above 70 and is pushed below 70 while the price is making higher highs. An RSI divergence often precedes turning-points in charts.
- On the 17th and 18th of September, the 0.382 Fibonacci retracement level (of the full price decline from 2017 levels) showed strong resistance.
- MACD histogram is trending downwards.
- The MACD moving averages seem to be thinking about crossing-over to the downside.
- I am already up 80%, in a very short time-frame, so I don't want to be too greedy and end up losing some or all of my gains. If it goes a lot higher after I sell tomorrow (market sell half on market open and limit sell the rest at $0.51) I will be able to live with it (I can see $0.51 as a short-term possibility based on the 1.618 extension of the 28th Aug to 7th Sept price rise). I hope I am not being too pessimistic in my outlook.
But I see a few reasons that "line up" without much technical or fundamental causes for too much bullishness. I hope you appreciate how transparent I am being. This really isn't a big money position, despite my conviction in entering the position, I ended up allocating far more to poorly performing equities. In fact, the worse performing, the more I allocated. Overall, this is the second position I am exiting in 2020 after selling Just Life for ~+70% but overall I am basically level for the year.
So wish me luck and I'll wish you luck too.
