Bounce For Woolies?

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

By Michael Gable 

With the US markets now starting to join the “correction party” that started in Australia last month, our market seems to lack any interest in having a sustained bounce. The last time our currency took a hit was back in May last year when the market fell 11%. When the dollar finished its fall, the market then went on to rally 1000 points to the September high this year. We found the price action last week to be particularly interesting to the extent that it gave us clues as to what would be the catalyst for a market rally. You would have noticed that as the Aussie dollar fell into support around US$0.86, it managed to stabilise and edge higher for a few days. As a result, our market staged an 80pt reversal on the Tuesday from the lows, another retest of that level on Wednesday with an intraday recovery, followed by a nice day up on Thursday.

We had Janet Yellen talking down the US dollar on Wednesday night which no doubt helped our currency. The other interesting point was that NAB started last Thursday down over 1% due to a write-down, only to quickly rally back and be up over 1% on the day. All of this is telling us that when the Australian dollar finds some support, money gets thrown at the market, shrugging aside bad news like in the case of NAB. Of course, the Dow Jones was down over 300 points on Thursday night so our market tanked and is once again struggling against the backdrop of the US market having a pullback. But the reaction to the currency movements is interesting. Yesterday also saw a great outperformance from the miners as China posted some better than expected trade numbers and iron ore bounced nearly 4% overnight. Commodities led our market lower, will they lead it higher? Alongside that we have 3 of the big four banks going ex dividend soon. Previous calls for a market bounce have been premature but with the market having moved from a “struggling to find value” state to a more palatable proposition, it will be interesting to see when the eventual recover starts to kick in, led by the Australian dollar.

Woolworths ((WOW))

WOW has come back to an interesting level here. Earlier in the year it broke out of an almost year-long continuation pattern. The recent pullback has seen it come back to the midpoint of that, which could represent a level of support. The pullback from the May high has also been done in 3 waves, where a = c in this “abc” correction. Price action on the daily chart was also recently oversold on the RSI (not shown on this weekly chart). With any bounce in the market, dead cat or not, likely to result in top 20 stocks showing strength, and WOW being undervalued, we could see it rally here up towards resistance at $35.
 

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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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