There are three main types of M&A situations. The first is when a bidder needs to make a deal to make up for underperformance or in an attempt to achieve further outpeformance. The second is when the target has underperformed and becomes cheap. The third is when the target is in the last chance saloon and the company itself would like to be taken over to put itself out of its misery. It may be uncharitable to suggest that Thomas Cook is in the third category, but it is not that far off either.
Sky News coming up with the bid story is clearly just in the nick of time for Thomas Cook shares which have been near year lows. But as has been pointed out, if the story was imminent the company itself would have been forced to release a RNS. Nevertheless, holding the chart gap to the upside yesterday through the 50 day moving average now at 28p was a sign that the stock could rally at least in the same way that it did in December towards 40p.
It is also interesting that there was bullish divergence in the RSI window aheadd of the Sky News revelation, indicating that a few speculators may have had a whiff of the good news. The key now is that 28p and the 50 day line is held for more than a few days. That said, given the gap up this month and the gap down in November we have a bullish Island Reversal, as well as a bullish Falling Wedge breakout, both of which suggest a move to 40p – with or without an officially announced deal. The key will be whether there is buying volume today, or just buy the rumour / sell the bid story to back the double charting buy signal?
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