Suncorp Approaching Support

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

Bottom Line 06/08/14

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: $13.70 / $13.12 / $12.60
Resistance Levels: $14.36

Technical Discussion

Suncorp Group Limited ((SUN)) is a Queensland-based financial services company offering retail and business banking, insurance, superannuation and investment products in Australia and New Zealand. In July 2013, the Company announced the completion of the Non-core portfolio sale to Goldman Sachs.  For the six months ending 31st of December, 2013 revenues increased to A$8.25B.  Net income decreased 5% to A$548M.  The company pays a dividend of 3.9%.  Broker/analyst consensus is currently “Hold”.

Reasons to be ready to buy:
→ There is scope for special dividends to be paid of around $300m in FY14 and FY15.
→ Double digit returns on new life products over the next year is feasible.
→ Australian interest rates will be kept low as unemployment rises, therefore higher yielding stocks will remain in demand.
→ Recent restructuring has provided a stronger balance sheet, improved efficiency which should flow through to higher earnings.

SUN was taking on a line of resistance during our last review with the ideal situation being for price to break up through it with a degree of attitude.  We really couldn’t have asked for too much more in that regard with strong impulsive price action continuing up to the recent pivot high.  Like the broader market a retracement has been unfolding over the past week or so though it doesn’t detract from the bullish case put forward.  Also, it’s worth remembering that old resistance becomes new support.  More often than not price will come back down to retest new support before heading higher again which is what I am looking for here.  Over the short term there is scope for slightly lower levels to be tagged although as long as $13.60 isn’t penetrated there is still room for optimism over the coming months.  The main problem I have here is that bearish divergence is evident on both the daily and weekly time frames which is a headwind to overcome.  Neither chart shows a textbook example of divergence though it is technically in position and therefore cannot be ignored.  All we can do for the moment is see how the current retracement unfolds and look for buying demand returning at the line of support.

Trading Strategy

“…The strategy here is to buy following a break above the line of resistance at $13.76…”   We are now holding long positions with the trailing stop very aggressively moved up to $13.78.  We do run the risk of being stopped out during a small retracement though with world equity markets taking a turn for the worse we want to limit risk as much as possible.  Let’s not forget, we can always re- enter at a later stage if the patterns permit.  If you aren’t already holding positions a little patience is required.  Should price hit support and reverse you could jump on at those slightly lower levels.  Conversely, should price get on with the job then buy following a break above the recent pivot high at $14.36 with the initial stop just beneath support.
 

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