Will Olympics provide opportunities for UK, global traders?

Will the Olympics provide opportunities for UK and global traders, or are these opportunities already priced in?
Brenda Kelly, senior market strategist at CMC Markets, conducts technical analysis on the construction, hospitality, travel and leisure, security and retail sectors to identify what opportunities still exist for short term traders looking to benefit from the London Olympics.

Sydney, 17 July 2012 The bid for London 2012 began as far back as 2003, ending in 2005 when the IOC awarded the UK with the prestigious hosting role Certainly the potential for economic impact, both positive and negative was undeniable, however, one must consider how the UK, and indeed the global economy, has changed since 2005.

Sectors such as construction, hospitality, travel, leisure, security and retail were expected beneficiaries of the Olympics, but for a number of reasons, much of the impact has been short lived or indeed, in the case of construction, already priced in.

If we look at the broad market, the FTSE index is heavily weighted towards the banking and mining sector, notably high risk sectors not necessarily affected by the Games. But if we drill down to sector level, there are some stocks where we will likely see movement in during the Olympics.

Hospitality sector

Whitbread (WTB): Whitbread experienced a surprisingly strong start to 2012 due to its expansion of the Premier Inn and Costa Coffee chain breaking above the 2000p level for first time recently. For reasons mentioned above, this suggests that the Games have been discounted into the price already. A pull back towards the 200 day moving average could be on the cards with 1896p a likely target for support.

Greene King (GNK): Green King’s full year results have proven resilience in tough conditions, with the stock price pressing through a four-year high as revenues jumped 9.4% to £1.14bn. Food sales were a large part of this, thus the Games may help to keep price action elevated. Heavily overbought currently, profit taking after these results is very likely, with a pull back to 547p, if not 530p the potential target in the near future.

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Travel sector

Easyjet (EZJ): London will be the centre of travel this summer and low fare airline, Easyjet currently benefitting from lower fuel prices should see increased passenger numbers over the summer. Its share price has been has recently made three year highs but is finding the going tough above 548p. Interesting to note that the price gapped down from this level back in late 2007. Corrections should be contained to 480p.

National Express (NEX): The demand from festival goers and football fans is helping to temper the £15m a year loss from senior citizen subsidies for transport group National Express. The price action dropped to a low this year of sub 180p but should find support at 200p. The 200 day moving average remains a key target, with the coincident 220p likely to cap upside in the short term.

Security sector

Aggreko (AGK): Aggreko, global leader in temporary power supply and a constituent of the commercial services sector, won the contract to provide power for 39 venues at the games. This, in addition to expanding demand in the likes of Africa and Japan, has led the company to spend £350m on its fleet, £30m more than originally planned. Recently, the company has seen its share price break the 2000p mark for the first time since December last year.

Despite the challenging macro climate in the domestic market, the company has expanded internationally and is gaining exposure in markets like Brazil, Chile, Argentina, Mozambique, thus expecting to see a 17% increase in revenues.

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Trading above its 200 day moving average and supported by 2033p level, the price action may run into resistance at 2153p in its attempts to retake the highs of this year at 2347p. A breakdown of the support would likely see the 200 DMA act as a barrier to downside.

Retail sector

Debenhams (DEB): In spite of an inclement spring, Debenhams posted better than expected sales this month on the back of the Diamond Jubilee. The recent warmer weather coupled with the imminent Games may help the department store to keep on the front foot. Once again profit taking in the short term may provide a dip with technical resistance at 86.00p we may see a retracement towards 74.85p before any action back above 100p.

McDonalds (MCD): The Olympics branding opportunities for the likes of Coca Cola, McDonalds Samsung and Acer, to name but a few, should help drive investor interest. To that end, (and the irony is not lost) Coca Cola and McDonalds will be the only branded refreshments that can be sold at the Games. Should an attendant wish to pay for food or a beverage with a credit card, it is only Visa that will be accepted.

McDonalds has seen its sales slip back in Europe and Japan this year with the share price down 12%. Trading well below the standard moving averages and finding support at $87.00, the price has been having difficulty sustaining any action above $89.00. Should support break, (uptrend from March 2011 lows and the 50% retracement from the January 2012 highs) we could see a move towards $83.00 per share, while a concerted break above $90.78 and the 55 day moving average could see a return to the highs seen early this year.

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Conclusion

The recent Diamond Jubilee managed to boost retail sales in June, with six out of ten retailers reporting a rise in sales, compared to 17% who said sales had fallen. In addition, the fall back in inflation has to some degree boosted consumer spending power, with the gap between wages and rising prices paring slightly. But despite this, the ongoing uncertainties emanating from the Euro zone remain a key concern.

The Olympics usually produce a “bounce in equities” however different rules apply in a recession. That said, the Jubilee did create some winners so undoubtedly the same will hold true for 2012 – the question is, who are they? Investors need to truly understand and follow the form of their investments to accurately gauge the situation.

www.cmcmarkets.com.au.

ENDS

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