Buying Opportunity In CSL

This story features CSL LIMITED. For more info SHARE ANALYSIS: CSL

Bottom Line 21/07/15

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $85.40 / $81.48 / $80.18 / $76.31
Resistance levels: $96.60

Technical Discussion

CSL ((CSL)) conducts research of biopharmaceutical products.  Following positive results it continues into the development and manufacturing stages before distributing the product.  It operates in three segments; CSL Behring, Intellectual Property licensing and Other Human Health.  The latter consists of CSL Bioplasma and CSL Biotherapies. Recently the company has acquired the Novartis flu vaccine business now making it the world’s second largest manufacturer. Whilst this may generate near term head-winds, longer term it’s expected to increase its profile significantly and turn a loss maker into a globally competitive business.  Broker / Analyst consensus is currently “Buy”.  The dividend yield is 1.6%.

Reasons to remain bullish
→ The operating environment remains encouraging.
→ FDA approval for the long-acting recombinant Factor IX fusion protein would be extremely positive for FY16.
→ The recent purchase of Novartis’ flu vaccine should be accretive over the longer term.
→ Ongoing acquisitions offer strong gains in synergy.
→ Brokers upbeat on new deal with some upgrades.

CSL was at a very important juncture during our last review with the wave equality projection quickly being approached which also showed good confluence with the line of support.  We were looking for a turnaround which I am pleased to say has kicked in with a degree of attitude.  If we are to be pedantic then the wave equality projection wasn’t quite met though in this instance close enough is good enough, especially having seen strong impulsive price action take hold over the past few weeks.  Today price came within a whisker of all-time highs made back in March of this year which tells us all we need to know.  The longer term trend is exceptionally strong and is likely kicking back into gear with a degree of attitude following the recent pause for breath.  Should price close above the line of resistance as annotated the door opens for a multi-month trend to develop which is something we’d want to be part of. 

Trends like the one seen here have been few and far between over the past few years notwithstanding the banks and the likes of Telstra.  Momentum is never a bad trait to have and there’s no reason to suspect why it’s going to come to an abrupt halt here anytime soon.  In fact it would take a break beneath the line of support to move back to a neutral stance though a decline to those levels isn’t our highest expectation at this juncture.  Zooming into the more recent price action shows that a gap was left just over a week ago which may well need to be filled before price gets on with the job.  Should this be the way forward we’ll be looking for a buying opportunity although we’ll discuss that in more detail below.

Trading Strategy

There are several options to consider.  Momentum traders could buy following a break up through the recent pivot high at $96.60.  If you want to avoid the possibility of a “fakeout” transpiring then wait for the breakout to transpire and look to be a buyer following a retest of old resistance/new support.  The caveat is that price surges off into the distance without getting the retest meaning you’ll be left at the station.  One solution is to initiate partial positions following the initial breakout and look to top up should price revisit new support.  Also be aware of the gap mentioned above as a rotation down to fill the gap followed by a high close would be reason to initiate partial positions, again with the intention of topping up when all-time highs are breached.  Either way, the initial stop should be placed just beneath the prior pivot low at $85.39 for longer term traders and investors or $90.37 if you’re more aggressive.

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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