Technicals | Feb 27 2013
Bottom Line 26/02/13
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Technical Discussion
Despite seeing a small pull-back over the past week or so the strong prior trend remains firmly intact with price pushing onwards and upwards since our last look at Commonwealth bank ((CBA)). We took a look at the weekly chart last time to try and gain some clarity in regard to the larger patterns which it has to be said looked very bullish indeed. Our medium term target has come within a whisker of being tagged meaning there is scope for one last show of resilience at this degree of trend though much is going to depend on whether current volatility can subside. If it does there is no reason why strength can’t continue over the coming weeks up towards the $70.00 mark as a minimum.
Obviously if equity markets start to embark on a deeper correction then CBA is without doubt going to follow suit. The push higher is looking a little stretched at these levels though as we know from past experience it doesn’t necessarily mean that a corrective phase is about to kick into gear. It just means we have to be cognizant that a more significant retracement could unfold, though as always we need to see clear evidence of distribution before getting overly confident in pencilling in an interim top. In regard to our wave count we’ll keep it simple by focusing on the structures from the low of wave-2. The current leg higher appears to be within wave-(iii) which should travel at least 1.618x the distance of wave-(i) to constitute an extension which is a feat that has almost been accomplished. Should price chop around in this general region over the coming two or three weeks then we can safely say that wave-(iv) is forming at slightly lower levels than anticipated. Not of great consequence in the bigger scheme of things as there should still be a substantial leg north to come once any consolidation pattern terminates. Indeed, should this wave count be correct there is significant upside potential still ahead despite the fact that all-time high territory has been achieved.
When significant areas of resistance have been overcome, or a company achieves all-time highs status (as in this case) it can only mean one thing; the stock is bullish with blue sky ahead. And as we often say on these pages once resistance is overcome price will often come back to retest new support which as can be seen is exactly what’s unfolded here. In fact if we zoom into the price action over the past couple of weeks we can clearly see a small 3-leg pattern to the downside with today’s low tagging support where buyers stepped up to the plate causing a strong close. So whichever way you look at it Commonwealth Bank is still looking bullish at this stage of proceedings. It’s also worth remembering that of the big four Banks, CBA is the best performer with no indication that this trait is about to change anytime soon.
Trading Strategy
Despite the potential for a reversal around the target as annotated it’s by no means a foregone conclusion meaning it’s not a reason in itself to stand aside if you’re a fan of the company. I’m not going to make a formal recommendation for the simple reason that the smaller degree patterns are more suited to the ASX Power Setups page. In fact a position is currently held in that section. However, having seen a small a-b-c retracement back to support you could be aggressive and use the Traders Trick entry. This means buying following a break above today’s high with the initial stop placed one tick beneath today’s low. A strategy not for the faint hearted however. Just be on the lookout for signs of distribution at the 1.618 projection of wave-(i) as it would be reason to defend open positions and take profit.
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