Technicals | Feb 25 2015
Bottom Line
24/2:
Daily Trend: Neutral
Weekly Trend: Neutral
Monthly Trend: Neutral
Support Levels: $3.90 / $3.55 / $3.05
Resistance Levels: $4.16 / $4.43
Technical Discussion
Automotive Holdings ((AHE)) is a diversified automotive retailing and logistics group with operations in Australia and New Zealand. AHE has three sections; automotive retail, other logistics and property. The automotive retail segment has 132 dealership franchise sites operating within the geographical areas of Australia and New Zealand. AHE's other logistical operations segment comprises AHG’s automotive parts warehousing and distribution businesses, motorcycle distribution and vehicle storage and engineering. The property segment comprises AHG’s direct property interest in land and building. For the six months ending the 31st of December 2014 revenues increased 11% to A$2.57B. Net income increased 17% to A$45M. Broker / Analyst consensus is currently “Buy”. The company pays a dividend of 5.1%.
Reasons to be ready to buy:
→ Lower interest rates and fuel prices should contribute to a strong second half.
→ Logistics should benefit from the acquisition of Scott’s.
→ The vehicle section continues to show resilience.
→ The improving trend in margin is a positive.
→ Price is trying to break out of a long drawn out consolidation pattern.
It’s been almost a year since our last look at AHE with the reason being clearly evident on this weekly chart. Price action has been exceptionally lacklustre from the significant high made in March 2013 with no progress being made whatsoever. Frustrating as this has been we can only review the sideways meander in a positive light.
The reason being that the prior trend was very strong which is emphasized by the fact that back in December 2011 the stock was sitting around $1.56 which shows the progress that has been made over the years. All things being equal, a congestion pattern following a strong trend portends an upside breakout which is exactly what we are looking for here. It could be argued that a very large triangle has been unfolding over the past couple of years despite it not being a textbook example. At the end of the day it matters very little how we define the consolidation phase. What does matter is which direction the next significant trend is going to take.
The only question we can’t answer at this stage is when the breakout is going to unfold although what we can say is that price is posturing in the right area which is all we can ask for. It would now take a break beneath $3.42 to put a dent in the bullish case although a continuation down beneath $3.20 to prove our analysis incorrect.
Trading Strategy
Consolidation patterns have been coming thick and fast over the past few weeks which as we have said before can only be viewed in a positive light. The aggressive strategy here is to buy following a break above last Thursday’s high at $4.16 whilst placing the initial stop at $3.90. The initial target sits at $5.50 which is the measured move out of the consolidation pattern as well as the 1.618 projection of the whole leg higher that commenced in 2008. This provides a nice area of confluence. The main risk here is that more time is required before the breakout transpires though ideally price will get on with the job sooner rather than later.
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