No Point In Chasing CBA

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

 

Bottom Line 09/09/15

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Down
Support levels: $70.99 – $69.12
Resistance levels: $88.40 / $96.17

Technical Discussion

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. For the year ending the 30th of June 2015 interest income increased 1% to A$34.1B. Net interest income after loan loss provision increased 4% to A$14.81B. Net income applicable to shareholders increased 5% to A$9.01B.  Broker/Analyst consensus is a comprehensive “Sell”.  The dividend yield is currently 5.8%.

Reasons to be cautious longer term:
? Further capital raising is feasible.
? Leveraged to a low interest environment.
? The March quarter came in below consensus.
? Margin pressure on mortgages has been increasing.

It’s just over a couple of weeks since our last look at CBA although back then we concentrated on the weekly time frame and therefore the larger degree patterns. These portended a decent bounce, albeit within a large consolidation pattern – likely a triangle.  The ideal situation was to see short-term weakness taking price into the area of confluence around $71.00 before reversing higher.  In that respect we couldn’t have asked for too much more with slightly lower levels being tagged over the past couple of weeks.  Over the past few days a solid rally has been unfolding and although it’s far too early to be getting overly confident in regard to a multi-month trend unfolding this would be the perfect world scenario from a pure pattern perspective. 

We also noted Type-A bullish divergence last time although at that juncture it hadn’t triggered.  It has now which opens the door for the recent show of resilience to continue for the foreseeable future.  Incidentally, there is also bullish divergence evident on the weekly time frame (not shown) which should support price.  Bullish divergence doesn’t necessarily portend a strong impulsive movement higher but it does suggest that the prior pivot low will not be overcome until our oscillator rotates all way back into the overbought position which on the weekly chart isn’t going to happen overnight.  In summary, there is plenty of confluence and positive patterns showing here.  All that’s left is for price to prove itself over the coming weeks.

Trading Strategy

One of the reasons for advocating caution in the amount of trades taken is because greater volatility increases the chances that our initial stop will be tagged during normal market noise which unfortunately is exactly what’s transpired here.  We recently initiated positions with the initial stop set beneath the strong reversal bar on the 25th of August.  As can be seen that low was penetrated by the slimmest of margins last week before buyers stepped in.  The end result is a little bit of frustration and a small loss although at that time it was a valid set up with a nice risk/reward.  I don’t see any reason to chase price higher from here although a micro consolidation pattern or even a small a-b-c retracement over the coming days would gain our interest and provide another low risk entry.
 

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