Woolworths: Signs Of Life?

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

Bottom Line 13/10/15

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Down
Support levels:  $23.21 / $22.85
Resistance levels: $27.57 / $29.22 / $29.96 – $30.20

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 year ending the 28th of June 2015 revenues decreased less than 1% to A$60.87B. Net income decreased 12% to A$2.15B. Revenues reflect Other Operating Revenue increase of 6% to A$189.3M.  Broker/analyst consensus is a comprehensive “Sell”.  Dividend yield at today’s price sits at 5.2%.

Reasons to be cautious short term:
→ Latest results were weak with a decline in the grocery business evident.  Big W and Masters were also below general consensus.
→ Continuing to lose market share in the grocery market.
→ Sales remain poor and whilst the company have acknowledged their shortfall, the ability to execute a turnaround will be key.
→ Margins will remain tight and potentially decline further in the near term.
Analyst support remains negative.

Considering that a substantial sell-off has been taking hold in WOW for well over a year the rally over the past few weeks has been noteworthy with price gaining 11% from the recent pivot low.  We noted during the last review that our lower target was within touching distance although as it turns out the recent show of resilience kicked into gear just above our target zone.  This means there is still a chance that one final probe down needs to be seen although it’s by no means a prerequisite to higher prices.  The recent bounce has become impulsive in nature which increases the chances that a more substantial rally is already underway. 

We were also keeping a close eye on Type-A bullish divergence on the weekly time frame during our last look at the stock although at that juncture it hadn’t triggered; we are sticking with the weekly time frame this evening which shows that this is no longer the case with our oscillator starting to move up toward the overbought position, although it should take several weeks before that feat is accomplished.  This means that all things being equal Woolworths is going to have a tailwind which can only be a positive attribute.  At the very least we’d expect the recent pivot low to remain unchallenged until our oscillator unwinds back into the overbought position.  The best case scenario is that price continues to rally.  There is some minor resistance up around $29.22 – $30.00 which could contain a few sellers.

Trading Strategy

Over the past four days price has been consolidating which at this stage can be deemed as being positive – at least over the short-term.  If you are aggressive you could buy following a break up through Friday's high at $26.76 with the initial stop set $25.90.  This is better suited to the short-term trader with the initial target sitting at $29.22 though this does offer a reasonable risk/reward trade.  If price can break up through resistance around $30.00 there is a strong chance of heading up to the 50% – 61.8% retracement zone of the whole prior leg down sitting between $31.51 – $33.26.  This is the best case scenario with price having to prove itself along the way.
 

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).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms