Wesfarmers To Retest All-Time Highs?

This story features WESFARMERS LIMITED. For more info SHARE ANALYSIS: WES

Bottom Line 10/10/13

Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Up

Technical Discussion

The double zigzag mentioned last month is still on course to complete a corrective movement higher for Wesfarmers ((WES)) which should terminate up around the high of wave-1 in a few weeks time.  So there is no reason to change our stance in regard to the larger flat pattern which isn’t quite 2/3 of the way through to completion.  The main clue on this particular chart is the impulsive, almost straight line decline to intermediate degree wave-(a) which technically cannot complete a retracement.  Add to that the fact that the bounce from those prior pivot lows is clearly overlapping means our wave count remains on track.  Zooming into the more recent price action shows that another 3-leg movement completes wave-a with a good chance that wave-b is also in position.  The 50.0% retracement level came within a whisker of being tagged a couple of days ago which is close enough for our purposes.  The door is still open to come back and revisit the lower boundary of the zone of resistance though it certainly isn’t a prerequisite to a rally from current levels.  It would take a break beneath the low of wave-x to suggest a larger and deeper corrective phase is underway although it isn’t looking likely unless the U.S. debt ceiling issue spirals out of control.  Again, not likely though anything’s possible.

Even assuming a more bearish corrective pattern is unfolding from the 2009 lows offers plenty of upside potential ahead with the wave equality projection sitting around $47.00 which is a high probability target area.  And if that region is overcome we can put on our bullish hats as it would suggest a larger 5-wave movement is going to be the way forward.  This is looking much further down the track and as we touched on above the current corrective phase needs more time to complete before that bigger buying opportunity presents itself.  However, if our analysis is correct then Wesfarmers is one to keep a close eye on if you’re a longer term investor.  So we have to keep our feet firmly on the ground for the moment which will be the case unless the high of wave-1 is overcome sooner than anticipated.  Back to the short term picture shows that volume has declined quite substantially during the formation of wave-b which again can only be viewed in a positive light over the short to medium term.  If the broader market can hold itself together I’m quietly confident that those all-time highs can be revisited as a minimum.

Trading Strategy

Nimble traders could jump on right here and now with the initial stop placed just beneath the lower boundary of the zone of resistance at $39.94.  The target is the high of wave-1 meaning the risk/reward is just about acceptable although definitely nothing startling.  As such I am not going to make a formal recommendation.  You could also use our SaR indicator as an entry mechanism though again the risk/reward doesn’t look overly enticing but just remember the entry level will come down as the days progress.  As mentioned above we retain a bullish stance longer term and if short-term trades aren’t your cup of tea then just let this larger corrective phase do its dash and revisit at a later stage.
 

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