CBA’s Upside Trend

This story features COMMONWEALTH BANK OF AUSTRALIA. For more info SHARE ANALYSIS: CBA

 

Bottom Line 19/03/14

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

Technical Discussion

We were asking the question last time regarding Commonwealth Bank ((CBA)) whether a 3-wave movement had drawn to a conclusion which if correct was a very bullish proposition indeed.  However, price has basically meandered sideways since that time and although not a bearish proposition we haven’t seen the impulsive move required to kick start the expected leg higher.  It could be that a little more posturing is required in this general region though for the bullish case to remain it’s important that the next significant move is to the upside.  And if we take a look back at the price action since October 2011 it’s plain to see that any dips that have materialised have been very short-lived indeed.  And to a certain extent this is a self-fulfilling prophecy with buyers waiting in the wings to jump onto the trend at any opportunity.  Although anything’s possible there is no reason to suggest why this trait is going to change anytime soon which can only mean that we need to be looking for an upside breakout.  Indeed, it would take a break beneath the early February low at $72.14 to suggest a much deeper retracement is going to unfold making it an area to keep a close eye on should weakness take hold.

The continued consolidation suggests that wave-4 is unfolding as an Elliott Triangle.  We’ve already seen the required 5-internal swings labelled (a) through-(e) although it’s by no means textbook.  Continued lacklustre price action would suggest wave-(e) is still to evolve which is more than feasible.  This wouldn’t change our wave count in any way but it would mean that the current corrective phase needs a little longer to complete.  So whether we get on with the job and break higher immediately or in a few weeks time is open for debate.  What we can say though is that a consolidation pattern forming at all-time highs coupled with the exceptionally strong longer term uptrend can only be viewed in a positive light.  So as we mentioned above all things being equal the next break should be to the upside, notwithstanding the broader market doing something untoward.  As we’ve been mentioning over the course of several months now there is no reason why the magic $100.00 level can’t be achieved over the coming months with the prerequisite being that the descending triangle breaks to the upside.

Trading Strategy

We’ve said it many times before but it’s worth repeating, consolidation patterns like pennants and triangles provide low risk entries which is something that’s always required as far as I’m concerned.  We need a logical level to place the initial stop which in this instance is the lower boundary of the triangle.  So if you’re looking for a trade in a strong trending company then CBA is putting its hand up.  Buy following a break above the upper boundary of the ascending triangle with the initial stop placed just beneath the lower trend line of the pattern.  For short term traders the target sits around the $85.00 region which is where the measured move out of the triangle sits.  Longer term the $100.00 mark is attainable as previously mentioned.
 

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