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Rupert Murdoch’s News Corp is the world’s largest media empire. The ticker symbol on both the ASX and NYSE is NWS. In this article I am going to focus on the ASX price action, provide some basic technical analysis and use options to take advantage of a move should it eventuate.
In February this year News Corp fell just shy of repeating the October 05 to June 06 price range applied to the August 06 low. This is shown in Chart 1 below using the Wave Extension Drawing Tool from ProfitSource. If News Corp had broken through the $33 price level this would have been a clear sign of strength however this resistance level held.
Chart 1 – NWS Daily Bar Chart
click chart for more detail
During February the stock fell quite strongly to form a low at $29.14. This is a key support area for a number of reasons. Firstly it is 50% of the August 06 to February 07 bullish run. Secondly extending a support line from the September 06 and December 06 lows coincides with the 50% price level. Thirdly, we have all heard the old saying support becomes resistance and vice versa. The triple tops in October, November and December can be expected to act as support once the stock passed (in this case gapped) through. These triple tops and the subsequent low which formed are illustrated with the blue shaded circles. It is interesting to note the triple tops in June 06 created a support level for the stock in November/December 06 where double bottoms formed. These are shown in Chart 1 with the peach shaded circles.
Focussing on recent price action we can see the January 07 lows have created a resistance level in March. These are shown in Chart 1 through the yellow circles. The $30.80 area is going to be an important level for News Corp. To the downside the key area is $30 as this is where the blue trend line and previous low occurred. Right now News is consolidating between two key levels with a possible breakout pending.
To take advantage of this using options, a trader could wait and then either enter a bullish strategy for an upside movement or enter a bearish strategy for a downside movement. An alternative would be to enter a strangle on News Corp now and if the stock does break you are already on board. A possible strangle is shown below in Chart 2. I would use a time stop of Friday May 4. Advanced traders could look to exit the OTM leg once the trade moves through the key support or resistance level and use a trailing stop. This will maximize your return should News make a breakout and follow through.
Chart 2 – Strangle Options From OptionGear
click chart for more detail
Quite often keeping it simple is the most effective way to trade. In this article I have done some basic technical analysis which has highlighted News Corp as a stock that could be poised to break out. As a trader it is important to be anticipate/stalk future moves and then when the opportunity presents itself place your trade.
Make it happen!
Guy Halpin
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