Is It Time To Wade Into AMP?

By Greg Tolpigin | More Articles by Greg Tolpigin

One of the worst things an investor can do is try to pick a low. Firstly, the exact low is never picked which means that at some point you are incurring a loss. Secondly, when you are incurring a loss the psychology suddenly becomes that with every new low the share price drops too, represent an even “cheaper” price and “better value”. I think we have all said at one point following this strategy, “that’s got to be the low”.

As a result of the low probability of success in picking “lows”, I never buy stocks in decline. I will always wait for the share price to stabilize, base and begin to head higher with some sign that the underlying business is improving. I can genuinely say that being disciplined in this approach has saved me countless sleepless nights, stress and not to mention – hard-earned cash. I always prefer to pay a higher price with confidence than a lower price with uncertainty.

So, as a result, I have had zero interest in the past two years to buy AMP. Even though many of my peers started talking value appearing and “potential” when David Murray joined AMP as chairman in May when the share price was hovering around $2.20, I preferred a wait and see approach.

Then came more headaches with the failed sale of its life insurance business in July which was quickly followed by a capital raising at $1.60 which wiped off another 27% of value off the share price. However, with a floor being placed in the share price at that $1.60 raising price together with a mild recovery of late, I find myself asking, “is it time to consider wading into AMP?”

Yes. Turnarounds in deteriorating stocks (if they ever happen), almost always occurs in the share price before it appears in the Company’s earnings numbers. So keeping an eye on the charts is particularly useful. A great example of this has been the recovery in car dealership owner AP Eagers that has recovered from $6 to $14 this year despite car sales volumes and pricing showing no signs of improvement. Yes, I know they have made a bid for Automotive Holdings (AHG) and the benefits of synergy but that does not account for a more than 100% increase in its share price through to record highs.

So clearly, it will be important to watch for early signs of a turnaround off the charts and we have some green shoots appearing. Now I must also stress another rule, when wading into such a situation like AMP, I never do so all in one day. By doing so, you encounter what I call “timing risk” – you are hostage to your ability to time your entry perfectly. If you fail to do so, you have exercised all your bullets and none left to execute at either better prices or if circumstances change, you are not incurring a loss on the entire position. Even if you apply a simple strategy of breaking your intended purchase into four evenly sized orders and then only execute the next when the prior purchases are in profit – you not only add to a winning position, but you are also kept to following the momentum in AMP. If AMP performs you buy more, if it flops then the exposure is smaller. I find it useful using this broad approach, maybe you will too.

The green shoots in AMP are appearing in the share price being able to re-capture the exponential moving averages. There was only one time since the peak in 2018 that this occurred which is shown by the arrow below in Jan 2018. This proved to be a false signal (nothing is perfect) but is now occurring once more. The current support is $1.80 as a result and it would be crucial to remain above that, to maintain the current positive momentum. An ability to take out one of the prior highs during the two-year downtrend would be a technically positive outcome. This is yet to occur since $5.40! The most recent high acting as a key resistance that will change the pattern of lower lows and lower highs exists at $1.94. A move above this would add to the current momentum. So too is the break of the trendline that stretches back 18-months and incorporates all the key highs in the decline.

We are yet to see anything meaningful register across weekly timeframes, but as said it is early days. AS the chart below shows the AMP share price has not been able to surpass the weekly moving averages since January 2018 so again that would be the meaningful trigger point on this timeframe. This exists around the $2.00 mark so using the daily trigger of $1.94, a move through the $1.94/2.00 would give a firm indication the turnaround in a more sustainable sense is underway.

I am a momentum investor. I like to see momentum I the share price and momentum in improving fundamentals. We don’t have that in the fundamentals, but if the life insurance business can be divested and the market concentrates on its wealth management business there is potential for a recovery back to $2.80. It’s like Lend Lease trying to exit is troubled engineering business. The ability to do so will reflate the share price higher. Like a “clean” Lend Lease is a takeover target, so is a “cleaner” AMP.

Early signs show AMP has promise. One of the best in the past two years. It’s possibly time to nibble but not gobble – just yet.

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Greg Tolpigin

About Greg Tolpigin

Greg Tolpigin has over 20 years of experience as a proprietary trader and high-level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank.

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