Icarus Signal New Entries: Another Myth Exposed

This story features AMP LIMITED, and other companies. For more info SHARE ANALYSIS: AMP

Update on share prices and consensus price targets.

By Rudi Filapek-Vandyck

There's a widely repeated theory about the share market that the so-called "smart money" always moves first, which is why paying attention to price action or momentum indicators for individual stocks can be so lucrative; traders believe they are tapping into early movers' market knowledge.

The problem with this theory is that is based upon "survivors' bias" and selective observations. Sure, it does happen that share prices move well ahead of an official announcement. Nobody should be so naive in underestimating both the hidden and obvious currents of information that flow throughout the public market place. But more often than not these movements in share prices are based on knee-jerk analysis and shallow assumptions; better not confuse the share market collective with some kind of superior form of insights and market knowledge.

Bank of Queensland ((BOQ)) is an obvious example.

Shares in Australia's Big Four Banks have performed well throughout 2012, but not so regional peer BOQ. Until May this year the shares of Queensland's proud regional lender had fallen by nearly a third to below $6.50. Then the buyers started moving in and buying support just kept on growing since. Especially from mid-July onwards, when the market's attention shifted towards the upcoming full year reports and final dividend payments, the share price took a big spike upwards -beyond the $7.50 mark- and last week it looked like BOQ shares might be threatening the $8 level.

Investors would have been forgiven for assuming the magical, mystical source of information that is Mr Share Market was guided by hidden insights that the tide had finally turned for Bank of Queensland. Those assumptions proved utterly incorrect when management at the bank issued yet another disappointing market update. As a result, BOQ shares have instantly disappeared off Icarus' radar, even with brokers' targets plunging post the bad debts provisioning inspired profit warning.

Post the event, the shares don't look too bad in terms of "apparent value" but, of course, one has to take into account overall confidence in the stock has once again been damaged.

One stockbroker -Morgan Stanley- has grabbed the opportunity by reinstating a negative outlook on the shares, even after the 10%-ish correction since Friday. Morgan Stanley believes market consensus estimates remain too high, overall analysts' bias too positive and risks firmly skewed towards more disappointments. The new price target now sits at $6.80 – still a long way below the current share price.

More importantly, however, is the question: how much "intelligence" or "insights" were involved during the share price rally from $6.15 to near $8 between May and last week?

Bank of Queensland might have swiftly fallen off Icarus radar, a buoyant undercurrent for Australian equities means the list of stocks trading in the vicinity or above consensus target continues growing steadily. No less than 11 stocks join the first list and they include Silver Lake Resources ((SLK)), AMP ((AMP)), Newcrest ((NCM)) and Beach Petroleum ((BPT)). Note most of these names have been switching between both lists so they are visiting and revisiting both sides of their target. There are now 42 stocks trading near target.

The list of stocks trading above target now contains 91 stocks and yesterday's price action saw the inclusion of Australian Vintage ((AVG)) and Amcom Telecom ((AMM)). Both have been strong outperformers in recent weeks.

Investors should consider the information and data are provided for research purposes only.

Stocks <3% Below Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 SLR $ 3.84 $ 3.84 0.00% 2 IOF $ 2.95 $ 2.953 0.10% 3 WHG $ 0.96 $ 0.957 0.21% 4 AMC $ 7.99 $ 8.009 0.24% 5 AMP $ 4.48 $ 4.494 0.31% 6 CPA $ 1.05 $ 1.056 1.05% 7 PFL $ 1.68 $ 1.70 1.19% 8 NCM $ 28.20 $ 28.555 1.26% 9 BPT $ 1.31 $ 1.338 2.14% 10 WCB $ 3.90 $ 4.00 2.56% 11 SUN $ 9.44 $ 9.689 2.64%

Stocks Above Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 AVG $ 0.51 $ 0.50 – 1.96% 2 AMM $ 1.35 $ 1.305 – 3.33%

Top 50 Stocks Furthest from Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 NFE $ 0.55 $ 1.30 138.53% 2 BRU $ 2.84 $ 4.52 59.15% 3 MBN $ 0.45 $ 0.70 57.30% 4 GRY $ 0.92 $ 1.447 57.28% 5 FXJ $ 0.40 $ 0.629 57.25%

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