Wesfarmers On The Cusp?

This story features WESFARMERS LIMITED. For more info SHARE ANALYSIS: WES

 

Bottom Line 30/10/12

EW Trend: Corrective
Price Trend: Up
Trend Strength: Weak

Technical Discussion

LAYMANS:

We noted late last month that the zone of resistance for Wesfarmers ((WES)) was proving difficult to overcome and this still remains the case. And the fact that price has been moving sideways for a reasonable period of time adds weight to the possibility that an interim top is already in position. There is still scope for one final show of resilience though if it’s going to transpire then buyers need to step up to the plate pretty much immediately. At this juncture there isn’t a great deal of buying demand taking place with volume being quite lacklustre during the recent small leg higher.  Remember, to be confident a sustainable trend is unfolding strength needs to be coupled with increasing volume with declines being lacklustre in nature accompanied by decreasing volume. That trait definitely isn’t transpiring here which does open the door a little wider for a period of weakness to take hold. The one thing that’s very apparent on the chart is the long drawn out trading range with price chopping between $28.00 – $35.00 for the most part, apart from a couple of spikes here and there. At the end of the day the early September high would need to be taken out with a degree of attitude to move us to a firmer bullish stance. Not totally out of the question but price needs to prove itself before getting too carried away in regard to a decent trend higher developing from these levels.  

TECHNICAL:

The wave count here has morphed into something a little more difficult to decipher with our wanted leg higher within wave-(v) failing to evolve.  It could still happen though the probabilities have subsided quite significantly.  So the highest interpretation now is that the larger corrective movement into wave-C has drawn to a close despite the final two legs lacking both in terms of price and time.  Should WES head higher immediately then the recent pivot low completes wave-(iv) offering further upside.  Just something to keep a close eye on should buyers suddenly enter the fray.  From a more conventional pattern perspective there will be many traders and investors alike focusing on the zone of resistance, or in other words the upper boundary of the trading range.  Should the upper boundary be penetrated we’d expect to see a move of around $7.00 to the upside from the breakout.  This target is attained by measuring the trading range and projecting it from the breakout.  As a general rule of thumb the longer the trading range takes to form the more potent the move will be out of the pattern.  So just because our wave count portends to another leg south doesn’t mean we have to stand aside should our analysis proves to be incorrect.  If the high of wave-C is overcome with some vigour we’ll be looking to jump aboard for the anticipated movement toward the upper target toward $42.00.

Trading Strategy

With the stock basically meandering sideways along the zone of resistance I don’t have any great inclination to want to be involved here.  Should price break down through the low of wave-a in an impulsive fashion you could certainly look to jump on with the expectation that the lower boundary of the trading range could well be tagged again.  Conversely, should price break up through the high of wave-C with some impetus there would be every reason to initiate long positions.  Just be cognizant that once resistance is overcome it will often be revisited as support.  So I’m quite happy to trade in either direction here with much depending on which of our trigger points is going to be overcome first.  One to keep a close eye on over the next week or two as a reaction seems imminent.
 

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