Macquarie Group inflection point

Macquarie’s share price has enjoyed a fantastic uptrend over the past 18 months but has pulled back to trend in recent weeks. This may present traders with a buying opportunity

Background

Opinions about the earnings outlook, risk profile and valuation of Macquarie Group can vary a lot. The fact that Macquarie’s share price rallied by 58% between March 2016 and May 2017 indicates just how much the consensus view on this stock can vary.

This partly reflects the fact that Macquarie is a relatively complex, conglomerate style group that operates a suite of relatively diverse businesses on a global basis. These businesses face a range of different risks and opportunities.

Macquarie has issued guidance that its F18 profit will be broadly in line with last year assuming no major change in market conditions. It issued the same guidance for F17 and actually beat it by around 7%

The Group is trading on around 13.1 times forward earnings. This is below the average of recent years. Since the beginning of 2013, its average forward PE has been 14.1. However the range was large, with a peak of 17.3 and a low of around 10 times forward earnings which was hit early last year

Your view on the outlook for this stock is likely to depend on a range of factors including interest rates; commodity prices; the Aussie Dollar and growing competitive pressure on fund management fees.

Chart inflection point

The chart has arrived at a useful inflection point for traders. Price is showing signs of rejecting support in the form of an established trend line and the 200 day moving average. A break above the recent peak and resistance at $87.87 could confirm rejection of the trend line support. Given, current below average valuations, a 5-10% rally could easily follow.

If on the other hand the market begins to get worried for some reason, the danger sign would be a break of the trend line which would be confirmed by a break below the recent low of $84.24