TUI Travel shares hit psychological resistance after strong earnings

<p>Shares in TUI Travel rose 3.3% on market open as shareholders cheered the travel firm’s results. Shares quickly fell back, however, to trade 0.6% lower […]</p>

Shares in TUI Travel rose 3.3% on market open as shareholders cheered the travel firm’s results. Shares quickly fell back, however, to trade 0.6% lower as prices neared psychological resistance of 400p.

Just like when the price of goods appear expensive at £10.00 but cheap at £9.99, the same happens in the financial markets and we saw many investors place sell orders around the 400p level, which triggered a sharp fall in shares after the initial price surge (see chart below).

Solid set of earnings

Nevertheless, this should not distract from what has been another solid set of results from the travel firm. TUI Travel posted a 13% rise in full-year profits to £555mn for the year to the end of September whilst revenues grew by 4%. This was higher than the 11% forecast by the firm in September, a forecast that they had already upgraded at the time, and so this result is very strong and helps to cement investor confidence in the company.

The final dividend was increased to 9.75p, a rise of 17%.

This result continues the very positive tone set for travel firms of late, with rival Thomas Cook also beating forecasts late last month when it reported a 49% jump in earnings, seeing its share price hit a new three-year  high.

A minor price correction?

Both TUI Travel and Thomas Cook have seen their respective share prices turbo charge higher in the last 18 months and today’s results will do little to detract from the good feeling surrounding both firms at present. That said, both stocks are due a minor correction whereby investors look to lock in their gains. The approaching end of the calendar year may well see investors re-shape their portfolios as part of this.

That said, given the strong sentiment, any price weakness has been seen as buying opportunities and so a minor correction in both stocks will likely be healthy for long term upward price momentum.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.