Woolworths (ASX: WOW) is the first large retailer in Australia. Does the recession have an impact on the stock value? What are the near and long-term perspectives?
Let’s have a look at that.
First, as usual, the big picture: the weekly chart is quite clear. The price action is currently moving in a triangle which is an indecision technical pattern. The long-term trend is bullish since 2004 as the stock rose from $11.30 (point a on the chart) to a high of $35.05 in December 2007(point B).
Despite the correction started from this high point, the price action found some support on the oblique line that comes from point A. Since July last year, several higher lows have been posted, confirming that that this long-term support line is valid.
However the price action is also capped on the upside by a resistance line, a descending slope that goes through lower highs (points B, then F and G). The ascending support line and the descending resistance line build an indecision triangle that has been tightening more and more.
The breakout of one of those lines usually gives a strong signal, whatever the direction (up or down). The trading range is currently $25/$27. The exit of this triangle is expected soon therefore a sharp following move is also expected. What is the most probable action? A spike or a tumble?
Switch to the daily chart: the technical indicators are currently bearish. The 30-day momentum indicator has curved downward, so did the MACD which has also triggered a negative signal when it crossed below its moving average last week.
The oscillators are also oriented downward: the RSI and the MFI (Money Flow Index) confirm the weak technical configuration of the current price action. A close below the lower band of the Bollinger bands, which is also below the support line, may be a trigger for a sell-off.
In a mathematical way, I would say that the probability of a plunge below $25 within the next month is 75%. A rebound on the support line is possible but is unlikely regarding the chartist tools.
Comments on this entry are closed.