CML: Where’s the...

CML: Where’s the bottom?
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Last trade: $6.50 (-16.24%)
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What happened: CML announced that its forecast for net profit for 2001/02 would be
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$350-$365 million. The market was shocked as $400 million had been expected. The revision comes on the back of margin pressure on the earnings of Kmart and Myer Grace Brothers. Sales growth was satisfactory although the cost saving program implemented was unable to adequately offset lower margin contributions.
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Where to from here: The market has obviously re-rated CML this morning and perhaps a little of Fletcher’s lustre is lost. It’s perhaps a case of believing in the‘miracle man’ fantasy too much and not giving an appropriate amount of time for business to turn around. See technical commentary below.
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Looking at the weekly chart above you can see quite clearly where historicalsupport lies. The $5.90 - $6.10 support has been evident since early ’97. This zone representsthe most confident area in which to enter into a long position. Given this is 50 cents away it is
the million dollar question as to whether it will fall this far to get set. Perhaps it is better to regardthis zone as the stop loss level or level of potential downside if entering a long position now.
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Obviously this strategy pertains to a longer-term view on CML, perhaps using longer dated instalments (see below). Short-term trading warrants clearly represent a more risky play.
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