As the different Australian indices have peaked last Friday and have turned bearish, the blue chips and popular stocks are likely to correct during at least the second fortnight of August. The Westpac stock (ASX: WBS) has peaked to $24.79 (point D on the chart) at the end of last week and fell back to $23.88 yesterday.
There are many technical indications that clearly argue for a strong correction, and the next target on the downside is well identified.
First, the clues that obviously show that the near-term should be the time for a sharp correction:
1) A correction is mechanically expected after the stock soared during one month, from mid-July to mid-August. WBS jumped from $19.29 to $24.79 (+28.5%). Such a performance in such a short period of time is totally exceptional on the historical basis of this stock.
2) As a result, the stock reached an overbought configuration. This is well illustrated by the Relative Strength Index (RSI) that rose to 82 last Friday. Remember that any value above 70 is typically considered as an overbought value. The stock has been overbought since the end of July. The RSI has curved downward and a cross below the 70-line would confirm that money flow is flowing out of the stock (risk reduction, profit-taking and even short-selling).
3) The peak of the price action at $24.79 corresponds to a resistance level. This area just below $25 was reached several times in August and September last year (points A, B and C). There is currently not enough momentum left to clear this level. The resistance holds firmly.
4) A trading system based on the Chande Momentum Oscillator (CMO) implemented on this chart has just triggered a “SELL” signal. Recently, this system previously well detected the previous highs of last April and last May, as well as the low of last November.
The immediate target for the correction to come may be the level $21, which corresponds to the previous highs of April and May this year. It could become a support level. This target is 12% lower than the current level.
{ 2 comments… read them below or add one }
There’s no
WBSstock on the ASX. I think you mean WBC .The code name for westpac banking corporation is WBC not WBS
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