Upside For REA

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

Bottom Line 03/06/14

Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Up
Support levels: $41.73 / $35.66
Resistance levels: $48.28 / $52.45

Technical Discussion

REA Group ((REA)) is involved in real estate which includes online advertising and associated services. Its online advertising services includes advertising of residential properties, commercial properties for sale and lease and provision of online display advertising space for advertisers in various industries. The Company’s residential and commercial property Websites are realestate.com.au and realcommercial.com.au. Its REA Media serves the property development and display media markets. In January 2014, REA acquired 1Form Online Pty Ltd. For the six months ended 31 December 2013 revenues increased 30% to A$209.4M. Net income increased 37% to A$70.7M. Broker/Analyst consensus is “Hold”.

Reasons to buy:
→ The March quarter update indicated a continuation of recent growth trends.
→ REA should continue to reap the benefits of its switch to a price per listing model from a subscription model.
→ The new CEO appointed this week may spend cash on acquisitions.
→ The longer term trend remains strong with price recently retracing to support.

REA has been an extremely strong trending stock over the years with a gain of over 428% between August 2011 and the recent all-time high made in March this year.  Since the top was made a healthy retracement has taken place.  The 20% pull-back is being viewed as being healthy in the bigger scheme of things whilst also opening the door for the trend to kick back into life.  Short term weakness is feasible although the next significant move should be to the upside.  Also note that the retracement has come back down to tag old resistance/new support in a clear 3-leg movement.  This is very typical at this stage of the trend. Although higher prices have been seen over the past few weeks volume has been extremely lacklustre.  This trait needs to change quickly if upside traction is going to be maintained.  On a more positive note bearish divergence on the weekly chart (not shown) has recently unwound which can only add weight to the bullish case.

Trading Strategy

Having just seen an A-B-C correction down to support an opportunity has arisen.  Buy following a break above last Thursday’s high at $45.96 whilst placing the initial stop one tick beneath the recent pivot low at $41.72.  The initial target sits at $58.52 though longer term there is no reason why those levels can’t be exceeded by a substantial margin.  A break beneath the initial stop before entry is reason to cancel pending orders.
 

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).

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