Shallow Retracement For CBA

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

Bottom Line 15/04/15

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $91.69 / $89.60 / $82.89
Resistance levels: $96.69 / $100.00

Technical Analysis

Commonwealth Bank ((CBA)) is Australia’s leading provider of integrated financial services including retail banking, premium banking, business banking, institutional banking, funds management, superannuation, insurance, investment and sharebroking products and services. The Group is one of the largest listed companies on the Australian Securities Exchange. It provides a full range of retail banking services including home loans, credit cards, personal loans, transaction accounts, and demand and term deposits through its Commonwealth Bank and Bankwest brands. The Group has leading domestic market shares in home loans, personal loans, retail deposits and discount stockbroking, and is one of Australia’s largest credit card issuers. In June 2014 both James Hardie and Stockland announced that Commonwealth Bank of Australia and its related bodies corporate ceased to be a substantial shareholder.  Broker/Analyst consensus is a comprehensive “Sell”.  The dividend yield is currently 4.3%.

Reasons to be bullish:
? Well leveraged to a low interest environment.
? It is well placed to absorb potential arduous capital requirements.
? A recent study of Banks in Australia bodes well for CBA.
? High Yielding stocks should continue to be supported with interest rates likely remaining low.
? CBA is the best performing bank in one of the best performing sectors.
? First time home buyers are on the increase with CBA well positioned to take advantage.

Price is pretty much where we left it during our last review which comes as no great surprise considering that the broader market has also been taking a breather.  However, our expectations haven’t changed over the past few months with our much vaunted $100.00 target consistently moving closer.  That said, over the short term there is room for slightly lower levels to be tagged with the downside target being $91.69 which is basis the wave equality projection.  This is assuming a 3-leg movement down is unfolding from the recent pivot high made in late March which seems likely. 

Looking at the bigger picture patterns via the weekly time frame (not shown) also offers higher prices.  Many brokers continue to be highly sceptical in regard to banks in general as well as CBA though this has been their view for a long time.  Most continue to advocate a “Sell” recommendation.  We tend to focus more on the charts so let’s get back to the aforementioned weekly chart.  Although the trend has been strong over the years, from May 2013 price pretty much went nowhere until the latest rally kicked into gear in October 2014.  In other words price consolidated during that time which can only be viewed in a positive light.  With this in mind we expect that the recent leg higher over the past five months or so still has plenty of legs in it yet before terminating.  In fact it would take a break beneath $73.57 to suggest a major top is in position; not our highest expectation, at least not until $100.00 is tagged.

Trading Strategy

With the trend from October of last year being exceptionally strong we have to go with the flow and expect that the current retracement is going to be shallow.  This isn’t always the case of course although it’s very apparent that any dips continue to be sought after by investors.  At this stage we need to stand aside although if our wanted a-b-c correction terminates at our annotated target we’ll be looking for an entry.  The prerequisite, as always is that demand returns at those slightly lower levels.
 

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

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