Woolworths Yet To Find Support

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

Bottom Line 02/06/15

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support levels:  $26.57 / $23.50 – $23.00
Resistance levels: $30.22 / $34.71

Technical Discussion

Woolworths ((WOW)) has interests in food, liquor, petrol, hotels and New Zealand supermarkets.  The latter is engaged in the procurement of food and liquor for resale to customers in New Zealand.  The hotel section is engaged in the provision of leisure and hospitality services which includes food, alcohol and accommodation as well as entertainment and gaming. For the 27 weeks ending the 04th of January 2015 revenues increased 2% to A$32.54B. Net income decreased 3% to A$1.28B. Revenues reflect a Liquor segment increase of 2% to A$25.61B.  Broker/analyst consensus is a comprehensive “Sell”.  Dividend yield at today’s prices sits at 4.9%.

Reasons to be cautious short term:
→ Sales remain poor and whilst the company have acknowledged their shortfall, the ability to execute a turnaround will be key.
→ Margins will remain tight and potentially decline further in the near term.
→ Analyst support remains negative.
→ Price action continues to deteriorate with major support now some distance below.

Although Woolworths has been showing some resilience over the past few weeks there is still no sign of significant demand at this juncture.  We also have to take into account the fact that price has been meandering sideways with a bias to the downside beneath a solid zone of old support which is now acting as resistance.  As an absolute minimum we’d need to see a push up through $31.00 before thinking in terms of a major low had being locked in.  It’s not impossible for price to head up through that make or break point though a rally of that magnitude isn’t looking likely right here and now.  Looking at the weekly time frame (not shown) shows the door is still wide open to head down to the target we’ve been concentrating on over the past few reviews circa $23.00.  This is where the next significant area of support sits and should continue to be our focus of attention for the time being.  Zooming into the more recent price action reveals that a symmetrical triangle has been unfolding over the past few weeks which means the next leg lower could be about to kick into gear.  A break through the lower boundary of the pattern could trigger some more impulsive price action which is much more likely if the broader market continues to show weakness.  One thing’s for sure, it’s difficult to envisage WOW bucking the trend of the broader market.  The bottom line is that caution is still required here and could well be for the foreseeable future.

Trading Strategy

If you are actively looking for shorting opportunities and are aggressive than the triangle does provide a low risk entry.  Sell following a break beneath $27.42 with the initial stop placed at $28.67 which in itself is a nice set-up.  As mentioned above there is no reason why the next significant zone of support around $23.00 can’t be achieved over the coming months.  For those looking for a buying opportunity you’ll likely have to wait until the aforementioned target is tagged before an opportunity comes your way.
 

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