Downside Risk For Wesfarmers

This story features CORPORATE TRAVEL MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: CTD

By Michael Gable 

Since our report on Corporate Travel ((CTD)) last week, the stock has rallied nearly 15%. Despite our occasional analysis on where the "market' might be heading, you have to remind yourself that its all about the individual stock picking. This can be seen in our recent trades and our model portfolio performance. The drag has been the stocks in the top 20, including the banks. It sounds like a bit of a "first world problem" to have, but it shows the turning point that we have seen in 2015. Large caps stocks have their place in the core part of your portfolio, but medium-term investment opportunities in the middle part of the top 200 will be the part of the S&P/ASX 200 Index, where the best gains can be made.

When you have some bits that work better than others (compared to a situation where nothing seems to be working), then you realise that there is a path to improvement, which means we can try to extract more gains and opportunities in 2016 by focusing on the winning bit and leaving aside the bit that isn't. One example of a top 20 stock that may underperform next year is Wesfarmers ((WES)) and we have included some chart commentary in today's report.
 

Firstly, note that this chart is a monthly chart, not the usual daily or weekly charts that we display. The price action of WES is starting to look very interesting here but not in a good way. The share price didn't do much over 2013 – 2015 but it was still respecting the long-term uptrend that commenced at the end of 2008. In June, it broke that uptrend in a fairly obvious way (circled). It managed to bounce back pretty quickly and hold those levels which warranted further waiting. But then we saw a retest of the new downtrend and another large sell-off (indicated by the arrow). The stock has been moving higher since the November low, but we are now getting confident that WES could be in trouble here. We would look for a short-term move towards $40.50 – $41 as a selling opportunity now. From there, WES could spend much of 2016 drifting down towards the first support level near $34.

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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