Is Woolworths heading to $10 per share?

Woolworths Limited [ASX:WOW] is predominantly a supermarket retailer. However, this conglomerate also includes liquor stores Dan Murphy’s and Cellermasters, Big W discount department stores, Masters Home Improvements, and petrol business through the Caltex/Woolworths service station partnership.

At the time of writing, WOW shares were trading at $21.57.

Why did Woolworths shares do this?

Don’t get too excited about Woolworths; this stock is going down. Woolworths has been plagued by Masters, the unexciting Big W chain, and an internal management merry-go-round for the past 12 months.

Since the first half results were announced, it’s surprising that the share price has fallen only 3%. This means that the message from management that it would a disappointing first half had reached shareholders. In other words, the bad financial news was priced into the stock.

Given that the stock is down 22% for the 2015/16 financial year, I expect the stock to fall further. Investors and fund managers will be keen to dump losing stocks for tax reasons.

What now for Woolworths Ltd?

There’s no getting around this, Woolworths has some major restructuring to do.

How they do it though, I have no idea.

But at this stage, with see-sawing markets and negative sentiment surrounding the conglomerate, I expect Woolworths to continue its downtrend.

While the $20–21 price point appears to provide technical support, WOW shares are consistently testing this level.

However, if WOW breaks this, the next level of support for the stock sits at $10–11. A price WOW shares haven’t traded at since the first half of 2006.

Long term investors would want to stay away from WOW until the share price confirms an uptrend.

Short term traders however should get ready to short sell Woolworths.

Shae Russell

Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

Money Morning Australia