By Michael McCarthy

Many investors are attracted to a value based approach to investing. Buy good quality businesses on the cheap, and let the market prove you right. Fortunes are made this way. The catch is that there’s (almost) always a reason a stock is cheap. Deciding whether the current rationale for a low share price is temporary or permanent is a core skill for value investors.

Amazon is coming! The Chicken Littles of the share market are panicking. Many do not seem to know that Amazon commands a princely 3% of US retail sales. Their entry to Australia lifts competition, but it doesn’t lay waste to the retailing landscape. And in my view the associated sell down has brought some quality choices to lower share prices.

This argument is not new. However, the price action in JB Hi-Fi (JBH) suggests a lower risk entry.

Note how the price found consistent support around $22.50. This price behaviour is an indication of “back foot” buying. A buyer or buyers are happy to soak up stock at that level, but are not chasing the stock higher. This is particularly important where a stock is short sold, as this sopping up of sellers reduces the ability of short sellers to buy back. And JB Hi-Fi is the fourth most shorted stock in Australia, with 15% of stock short sold.

Adding to the technical support is a lower PE, around 11x, and a dividend yield with franking of around 5.2%. This coincidence of technical and fundamental support increases the chances of a melt up in JB Hi-Fi's shares.