Wesfarmers Set To Peak

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

 

Bottom Line 20/02/13:

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up

Technical Discussion

Wesfarmers ((WES)) was in the midst of a powerful leg higher during the last review giving us every confidence that our target area circa $40.00 was going to be tagged in reasonably quick fashion.  In fact Wednesday’s high came within a couple of cents of that target which is certainly close enough.  Yesterday’s decline came on the back of the company going ex-dividend and is therefore not reason for concern.  So a very critical juncture has arrived with the price action over the next few weeks being of paramount importance in regard to the larger patterns.  In essence the zone of resistance goes back to the all-time highs made in June 2007 which makes this region even more significant.  The question now is whether the company has got it within itself to head up into blue sky territory?  If the broader market can continue to show resilience then there is no reason why WES can’t do just that though price needs to prove itself before getting overly confident.  If the zone of resistance can be overcome then the next target sits around the $45.00 mark which is where the wave equality projection of the larger pattern sits.  And as we know once significant resistance is overcome the door opens for something much more bullish over the longer time frame to take hold.  For now though we’ll take one step at a time and see how the smaller degree patterns unfold.  Much will depend on whether impulsive price action continues or whether some chop is going to show itself.

We often mention bullish and bearish divergence on these pages, and for one very good reason.  It’s one of the most reliable tools in our toolbox and rarely lets us down.  The first thing to remember is that divergence is even more significant when overhead resistance or support is being approached.  That’s the exact situation here though in this case it’s the Type-B variant.  This means that price has made a higher high whilst our divergence oscillator has failed to confirm.  This doesn’t always mean that a reversal is imminent though as a general rule of thumb the prior pivot high will not be penetrated until our oscillator works its way back down into the oversold position.  It’s also worth noting that a sideways meander will suffice in regard to our indicator heading down into that region.  In fact should this be the way forward there is every chance that the stock is going to have an attempt right here and now at overcoming the upper boundary of the zone of resistance around the $42.50 level.

Trading Strategy

For those still holding it’s time to either take profits off the table or be aggressive with the trailing stop.  Just beneath the minor pivot low at $38.02 will suffice and provide a little wiggle room should the trend continue.  The other strategy is to use our SaR indicator which presently sits at 37.98 though remember this will change as time progresses.  This will also keep you in the trade should the trend continue.  We generally don’t advocate taking positions with overhead resistance just above which means right here and now no trade is available.  And although a potential reversal point has been met I simply don’t want to be looking at short positions.  Two reasons why.  First of all the broader market trend is up (and significantly so) meaning we don’t want to fight it.  And secondly WES itself continues to push higher with some vigour with no indication of any selling activity at this stage of proceedings.  We’ll stand aside for the moment and see what the next week or two brings.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not FNArena's (see our disclaimer).

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