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Sunny outlook for Thomas Cook despite testing times

The selloff for the travel agent proves short-lived as investors ignore much of the reputational risk of 2015 events to instead focus on a firm which is holding steady in tough economic conditions.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
Thomas Cook travel agent
Source: Bloomberg

From a reputation standpoint, 2015 hasn’t exactly represented the finest year for Thomas Cook. However, with earnings on a positive trajectory and the firm managing to travail the European crisis admirably, it is worth considering whether these negative PR events really deter investors or whether the company is likely to build on its success throughout the year so far.

The gas leak that caused the death of two young children in 2006 was brought to court earlier this year, ultimately leading to a bitter media battle which saw the company come out in anything but a positive light. The response of many was to promise that they would avoid using Thomas Cook in the future. Despite this, we have seen the company post substantial gains in the stock market within arguably one of the toughest economic environments for years.

However, much of the gains we have seen so far in 2015 have been driven by the 25% spike in March following the 5% stake purchase by Chinese firm Fosun. Unfortunately for investors, the hope of a full takeover offer has failed to materialise and as such the price has been lacking direction ever since.

That being said, the firm has seen an eight month bull trend in place. Despite the weakness in later 2014, the chart is showing clear higher highs and higher lows in recent months. Today’s bounce from trendline support is another example of this strength and gives me confidence that we will see losses minimised by this rising support.

With today’s candle looking likely to close as a hammer with a seriously long lower shadow, the bullish intent clearly could come back in to play later into the week. Ultimately I am bullish as long as price remains above the rising trendline and 200-day simple moving average and can see a return to 160p in the coming months. 

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.