Patience Required In Woolworths

This story features WOOLWORTHS GROUP LIMITED. For more info SHARE ANALYSIS: WOW

Bottom Line 06/05/14

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $36.40 / 35.14
Resistance levels: $38.92 / $42.50

Technical Discussion

Woolworths ((WOW)) has interests in food, liquor, petrol, hotels and New Zealand supermarkets.  The latter is engaged in the procurement of food and liquor for resale to customers in New Zealand.  The hotel section is engaged in the provision of leisure and hospitality services which includes food, alcohol and accommodation as well as entertainment and gaming.  For the 27 weeks ending the 5th of February this year the company increased revenue by 6% to A$31.94B.  Net income increased 8% to A$1.32B before extraordinary items.  Broker/analyst consensus is currently “Sell”.  Dividend yield at today’s prices sits at 3.6%.

Reasons to be ready to buy:
→ Stronger growth in grocery earnings is expected, both domestically and in New Zealand.
→ The company continues to focus on increasing profitability in New Zealand and turning around Big W and Masters.
→ Following a multi-year trend up to the 2007 highs a long pause for breath has been witnessed.  Price is currently trying to break out of the consolidation pattern into blue sky territory.  

Price had just broken through the upper boundary of the zone of resistance during our last review adding weight to the bullish case.  Despite all-time highs being achieved we weren’t overly convinced that strength was going to continue immediately.  The reason being that a gap had been left.  The market generally doesn’t like to leave gaps and as can be seen it’s come within a whisker of being filled.  The recent weakness appears to have come on the back of the third quarter sales results which generally came in below most analysts’ expectations.  On the positive side of things the initial sell-off was short-lived which keeps the door open for the trend to the upside to resume.  It’s now going to take a break above last Tuesday’s high at $38.92 to move us to a firmer bullish stance.

Trading Strategy

We need to see the recent pivot high at $38.92 penetrated before jumping on meaning some patience could be required.  Price could posture in this general region for a while longer due to Type-A bearish divergence triggering on the weekly chart (not shown).  Initiating positions with divergence in position is always a risky proposition and is the reason I’m not going to make a formal recommendation at this time.
 

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