Westpac Requires Caution

This story features WESTPAC BANKING CORPORATION. For more info SHARE ANALYSIS: WBC

Bottom Line 21/05/14

Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Up
Support Levels: $33.39 / $33.03 / $32.97
Resistance Levels: $35.29 / $35.99

Technical Discussion

Westpac ((WBC)) is Australia's oldest banking group which operates throughout Australia and New Zealand. It is divided into three core businesses: Australian Financial Services, Institutional and New Zealand. Other brands it operates are St George, Bank of Melbourne, BankSA, RAMS and BT Financial Group. For the six months ended 31 March 2014, Westpac Banking Corp interest income decreased 6% to A$15.86B. Net interest income after loan loss provision increased 8% to A$6.3B. Net income applicable to common shareholders increased 10% to A$3.62B.  Broker/Analyst consensus is leaning toward “Sell” [FNArena database consensus is neutral on a Buy/Hold/Sell ratio of 2/4/2 – Ed]. The dividend yield is currently at 5% [FY14 5.5% on FNArena database forecasts – Ed].

Reasons to Buy:
→ 3 dividends are in the process of being paid  which equates to a yield of around 8.0% over the next 12 months.
→ Australian interest rates will be kept low as unemployment rises, therefore higher yielding stocks will remain in demand.
→ Price has just completed an a-b-c retracement.

The large ascending triangle we’ve been focusing on is still the headline pattern although the failure to get on with the job having broken up through the upper boundary is reason to be cautious.  There is a minor line of support running through current levels which needs to hold if our wanted leg higher is going to unfold.  Should $33.00 be overcome the door is open to rotate down toward $30.00.  At this stage that’s the worst case scenario.  On the positive side of things a symmetrical looking a-b-c correction could well have terminated today.  Today’s high close was just what was required although follow through strength needs to materialise.  A push up through the prior pivot high at $35.29 is now required to kick start our wanted leg higher.

Trading Strategy

We continue to hold long positions from $35.00 though it’s worth noting that the company went ex-dividend just over a week ago.  We’ll keep the trailing stop set at $30.00 for the time being though I’ll be looking to tighten it during subsequent strength.  When entering any position the goal is to reduce risk and ideally move to a breakeven situation as soon as is practically possible.  If you aren’t already involved you could use our SaR indicator as a trigger mechanism which currently sits at $35.05.  Watch for a close above the indicator before initiating positions.

 

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