Xero: The Pause That Refreshes

This story features XERO LIMITED. For more info SHARE ANALYSIS: XRO

The Chartist suggests Xero ((XRO)) shares are consolidating before resuming their uptrend.

Bottom Line

22/1:
Daily Trend: Neutral
Weekly Trend: Up
Monthly Trend: Up
Support levels: $157.99 (old all-time high) / $127.67 $126.69
Resistance levels: N/A (all-time high)

Calendar Events:
Report Date: May 2025     Ex-Div Date: T.B.A

Technical Discussion

Reasons to be bullish:

-The CEO’s new remuneration package will likely increase opex growth by around 2% in FY26.

-The above increase could pressure consensus opex forecasts for FY26.

-Industry feedback indicates growth in ARPU for XRO.

-Efficiency could be improved by the generative AI assistant (just ask Xero).

-Consolidating around the all-time highs.

A quick look at the monthly chart (not shown) reminds us that XRO can gain a head of steam when it’s in the mood.

In fact, since November 2022, it’s been tracking higher with intent. The end result of that rally was a gain of around 186% to the recent pivot high.

It’s also taken price into blue-sky territory which can never be a bad thing.

This daily chart shows that some profit-taking has been taking place over the past few weeks, albeit at this stage it’s nothing out of the ordinary.

It was looking overbought at the recent pivot high, with parabolic price action starting to take hold.

As we’ve said many times before, it’s never sustainable. Every trend needs a pause which is what we are seeing now.

There’s even room for a deeper retracement within a healthy uptrend, albeit it’s not a prerequisite to higher prices.

Buyers have been continually stepping up during any short retracements. It’s a good trait to have and one that will ideally continue.

We’ll start our wave count from the low of wave-(2) made in November 2022. Off that low, impulsive price action has been the main theme, with waves-(i) and-(ii) unfolding in textbook fashion.

The latter terminated just above the -50% retracement level just as we like to see.

At a smaller degree, another 5-wave move has been forming. Minor degree waves-i and-ii are in place, with what should be the strongest of all the impulsive waves within wave-iii still evolving.

In stocks, third legs tend to extend which in this instance is good news. If our labelling is correct, wave-iii at 3 degrees of trend is underway which is about as bullish as it gets when using the Wave Theory.

To constitute an extension, the 1.618 projection needs to be tagged. I have put 2 targets forward here, from differing degrees of trend. It’s good news, as it provides an area of confluence to concentrate on.

Nothing is guaranteed, but it’s uncanny how many times price will be drawn to those areas. It offers upside from current levels assuming that zone is going to be tagged.

There’s no reason why it shouldn’t be when looking at this chart. It’s also worth noting that the target zone is our minimum expectation at this stage of the trend.

In powerful trending stocks the 1.618 projection can be overcome by a large margin. Right here and now though we need to concentrate on the area on either side of $200.00.

If there is to be a pause, it will likely be in that vicinity.

Trading Strategy

If you are looking for exposure to the Technology sector, you could do a lot worse than XRO here.

The triangle also presents an opportunity if you are that way inclined. You could buy following a break through the upper boundary of the pattern whilst placing the protective stop just beneath the lower trend line.

 It is aggressive, so it’s not one for longer-term traders or investors. With blue-sky ahead it’s best to use a trailing stop to manage the position.

I’m not making a formal recommendation due to the target zone being reasonably close by.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena’s (see our disclaimer).

This report may contain advice that has been prepared by The Chartist Pty Ltd (ABN 40 641 323 051). The Chartist Pty Ltd is a Corporate Authorised Representative (CAR No. 1282007) of Shartru Wealth Management Pty Ltd ABN 46 158 536 871, AFSL 422409. Any advice is considered general advice and has been prepared without taking into account your objectives, financial situation or needs. Because of that, before acting on this advice you should therefore consider the appropriateness of the advice having regard to your situation and your own objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. If the advice relates to the acquisition, or possible acquisition, of a product (other than a security e.g. a CFD) then the client should obtain the relevant Product Disclosure Document and consider it before making any decision about whether to acquire the product. Past performance is not a reliable indication of future performance. This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.

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