Caution Required On Macquarie Group

This story features MACQUARIE GROUP LIMITED. For more info SHARE ANALYSIS: MQG

Bottom Line 11/05/16

DailyTrend: Up
Weekly Trend: Up
Monthly Trend: Down
Support levels: $58.28 / 51.90
Resistance levels: $75.85 / $86.72

Technical Discussion

Macquarie Group ((MQG)) is a leading provider of banking, financial, advisory, investment and funds management services. It operates as a non-operating holding company (NOHC). The company’s products and services include asset and wealth management which is engaged in the distribution and manufacture of funds management products. In June 2014 Charter Hall Group announced that Macquarie was no longer the substantial holder of the Company. For the year ending the 31st of March 2015 interest income increased 9% to A$5.01B. Net interest income after loan loss provision increased 13% to A$1.73B. Net income applicable to shareholders increased 28% to A$1.5B. Broker / Analyst consensus is currently “Hold”. The dividend is presently 5.7%.

Reasons to remain bullish longer term:
→ The recent acquisition of an aircraft leasing portfolio is positive for future earnings.
→ The trading range has been penetrated.
→ FY 16 guidance has been revised higher.
→ Capital market trends are improving and figures suggests MQG is set for its strongest half in three years.
→ The pay-out ratio over the past five years has been at or above guidance.

Until the past couple of weeks almost all the impulsive movements have been to the downside which isn’t a good characteristic to have. However, on the positive side of things that trait has changed with price surging higher from the line of support as annotated just above $60.00. Although this can’t move us to a firmer bullish stance longer term it is certainly a step in the right direction. In fact, the financial sector as a whole has been bouncing recently which shouldn’t really come as a surprise considering the depth of the retracement over the past few months. The question is, does this recent show of resilience mean a significant low is in position?

This could prove to be the way forward although from our perspective we still need to be cautious longer term. There are a couple of reasons why. First of all, the bounce that commenced in February was initially choppy and messy which still suggests the recent rally is part of a larger corrective pattern, albeit with further upside potential. Secondly, there is a zone of resistance to contend with which coincides nicely with the typical retracement zone of the prior leg down. The important area to keep a close eye on is around $75.86 which is the 61.8% level. A push above would open the door for a continuation up toward the significant highs made in October of last year. In other words, for the moment price, as well as the patterns need to prove themselves a little more before getting overly enthusiastic.

Zooming into the more recent price action shows that bearish divergence is in place although importantly it has yet to trigger. It would take an immediate retracement to trigger the divergence meaning at this stage it’s something to watch only as opposed to advocating an immediate retracement. A couple more days of strength is all that’s required for our oscillator to head back into the overbought position, thus nullifying the divergence.

Trading Strategy

It is easy to get sucked into positions when a straight line movement higher unfolds (as is the case here) but now isn’t the time to be jumping on. As always, we have to have a low risk entry before getting involved and one simply isn’t presenting itself here. Adding weight to the case for caution is the minor zone of resistance sitting slightly above current levels and of course the bearish divergence mentioned above. Should a short corrective pattern lower unfold over next few days an entry could present itself for the more nimble and aggressive trader although for the moment we are going to remain sidelined. There are plenty of companies trending well at the moment and despite the recent rally here, MQG doesn’t fit into that category yet.
 

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).

Risk Disclosure Statement

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