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Technical update: 14 September 2018

Violeta Todorova

Wesfarmers (WES) – overbought

WES has enjoyed a strong run since February 2018 which is still technically intact. The rally has lost momentum over the past month and the price has been trading sideways within the boundaries of a small bearish descending triangle pattern. The weekly RSI and MACD indicators are in overbought territory suggesting that the stock is vulnerable to a pull back in the weeks ahead. A break below minor support of $50.36 is likely and will confirm the triangle.

The potential downside price target based on the breakout is $48.50. Active traders may consider trimming positions and switching into WOW which is currently oversold and has a good probability of bouncing in the short term.

Woolworths (WOW) – oversold

WOW has been trading in a correction over the past two months which is still technically intact. The current price action has retraced close to its dynamic support of $27.00 provided by its long term up trend line, where initial buying interest is likely to arise. The RSI and the MACD indicators have reached oversold territory suggesting that the price is likely to bounce soon. Although at this juncture in time there is no sign that the correction is complete, given the proximity to dynamic support and the oversold momentum readings, we are comfortable to start accumulating around current prices.

The initial upside price target is $29.50. 

Spot Gold – building a base

Gold has been trading in a down trend since April 2018 which is still technically intact. Last month’s price action retraced close to its key support of US$1122 which appears solid and is likely to hold. The down trend line on the leading RSI indicator has been broken upwards recently (see chart below), suggesting that the down trend is clearly losing momentum. A higher low appears to be forming on the price chart which shows that buying interest is building up. Given the proximity to key support, the improvement in momentum conditions on the daily chart and the formation of a failure swing point on the RSI indicator on the weekly chart, we are of the view that gold might be at a turning point. A break above minor resistance of US$1214 will confirm that the precious metal bottomed at US$1160 and trigger a rally in the months ahead.

The initial upside price target US$1260. Over the medium term, levels to US$1290 are achievable. 

St Barbara (SBM) – tactical buy

SBM has been trading in a correction mode over the past two months which is still technically intact. The price retraced close to its previous band of support/resistance between $3.25 and $3.53 where initial buying interest is likely to arise. A bullish divergence between the price and the RSI indicator has formed on the daily chart pointing to a likely bounce in the short term.

The initial upside price target is $4.00, however higher prices are achievable over the medium term. Despite a clear signal that the correction is over, given the proximity to its band of support, the bullish divergence with the RSI and the improvement in momentum conditions in gold in general, we are comfortable to open a trading buy at current price levels. 

Evolution Mining (EVN) – double blessed buy

EVN has been trading in a correction mode since June 2018 which is still technically intact. The price retraced to its previous resistance of $2.60 where initial buying interest is likely to arise. A bullish divergence between the price and the RSI indicator has formed on the daily chart suggesting that the price is likely to bounce soon. The weekly RSI indicator has retraced to its support also pointing to a likely bounce in the near term. Given the proximity to support and the oversold and diverging momentum conditions, we are comfortable to accumulate the stock at current prices.

The initial upside price target is $2.95 however over the medium term higher price levels are achievable. 

More information

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.