Thomas well-cooked

Philip Salter
Follow Philip
THOMAS Cook, the purveyors of package holidays, led the way in the last century in opening up the world to those whose parents would never have thought of leaving the country. No longer at the vanguard, the company is now unfashionable and anachronistic in a world of cheap airlines and online deals. Investors are turning their backs on the company, as the share price slides – last Wednesday it dropped 6 per cent to 13.74p.

Only luck would have put traders on the right side of this latest plummet in the share price, as it was driven by announcements on the fate of the company. This dip is as a result of the announcement of the closure of 200 stores on the back of a £398m loss. Michael van Dulken, head of research at Accendo Markets, says: “With unforeseen events, there is no way to profit from the initial move. Shares opened significantly lower – unless you were short from the day before, there was no way to get in early enough.” However, the volatility hasn’t ended and stocks – even Thomas Cook – can go up as well as down. Spread Co’s Ian O’Sullivan notes that clients have since been buying the dips. He explains: “The moves may not seem like much, but a move like Wednesday’s lows of 13.75p to Thursday’s close at 15.5p is actually a 12.7 per cent move.”

There have been some opportunities to trade off the technical signals in Thomas Cook’s share price over the past year. Brenda Kelly, market analyst at CMC Markets, explains (see chart below): “June 2010 saw a bearish crossover of the 50 and 200-day moving average, as the share price dropped back from May’s 272p level towards the 200p within a month.” Kelly notes many expected the summer to be a fairly bumper time for the company, but the share price told a different story, with the major breakdown of the key psychological 200p level in May 2010 lending weight to the southward trajectory. She notes: “The equity traded in a range from June 2010 to March 2011, bouncing between support of 176p and 199p resistance – the support then broke and this was followed in quick succession by a death cross – the bearish crossover of the 50 and 200-day moving average.”

Clearly Thomas Cook is in bad shape, but predictions are hard. “The stock has remained around 15p for some time and it’s anyone’s guess as to whether we’re going to zero or not”, says Angus Campbell, head of sales at Capital Spreads. While it is possible to turn a profit on the upside or downside, these trades need to be for the short term. On November’s dip, O’Sullivan says: “If you were fast enough, or brave enough, there was a 30 minute opportunity where you could have shorted the shares around 19p before they plunged to 9.3p at 9am.” Campbell noted some traders then went long at 9p on the premise that it’s either double or bust and a few days later we were back above 20p, albeit briefly.

Things fall apart and nostalgic stock pickers have lost money betting on a Thomas Cook recovery. Likewise, spread betters expecting a reversal of trend have suffered. Campbell cautions: “If you were a bull back in July you might have thought it was a good buy around 120p before the first crash of nearly 30 per cent. On the 11 July if you had bought £10 per point around 122p, the very next day you could have been facing a loss of around £350 as the stock plummeted by 35p.”

Will Hedden of IG Index quips: “As soon as you hear that a firm is calling its banks for more credit having used up the existing lines, the phrase ‘please find your nearest exit, situated here, here, and here’ comes to mind.” Kelly has given up hope: “Most people I know would struggle to recall the last time they entered the premises of a travel agent.” She thinks with the majority of people going online when booking a holiday without the aid of a travel agent, traders long on Thomas Cook need a small miracle – a complete rethink of its business model – to prop up its share price.