Did you happen to see an article in the Australian Financial Review last week upbeat about the prospects of Flight Centre Travel Group [ASX:FLT]?
You might be surprised to hear that, knowing that FLT traded at a 12 month low on November 20.
However, the broker cited in the article thinks increasingly competitive conditions within the airline industry will work in the company’s favour.
Another factor was the emergence of low-cost carriers, which will unlock a new segment of Australian travellers to off-shore destinations. That should help Flight Centre book more earnings. Consensus forecasts imply earnings per share growth of 8.2%.
Personally, I don’t trade broker recommendations. I trade off the chart. And that’s telling me a different story. On the weekly charts, FLT is breaking lows and below the moving average.
See for yourself…
Why am I showing you this?
Well, the Flight Centre recommendation reminded me of another report back in June about The Reject Shop [ASX:TRS].
A multinational financial services company highlighted it, alongside several others, arguing they were undervalued and a great buying opportunity.
They talked about their strong brands and good growth prospects. The research analysts were very optimistic. The suggestion was they were wasting no time in adding to their positions.
Here’s what I do when I come across an opinion like this…I bring up a chart.
And the chart gave one no cause to share the optimism of the analysts. At the time, it was in a downtrend, breaking lows.
Here’s what that chart looks like today…
As I mentioned, the bullish article on the Reject Shop was printed in June. I’ve marked the date of publication on the chart. Guess what? This stock has become even more of a ‘bargain’.
This is why you will find some basic chart reading knowledge of immense financial value.
Now, I’m not suggesting Flight Centre will continue in its downtrend, as per The Reject Shop. What I am saying is to be sceptical of opinions — whether it’s your neighbours’ or some ‘expert’ brokers’ — until you see some evidence to be bullish on the stock in the chart.
That way you leave your precious capital free to capitalise on more compelling opportunities.
for The Daily Reckoning Australia