CSL High Risk

This story features CSL LIMITED. For more info SHARE ANALYSIS: CSL

Bottom Line 16/02/17

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $91.62
Resistance levels: N/A

Technical Discussion

CSL ((CSL)) conducts research of biopharmaceutical products.  Following positive results, it continues into the development and manufacturing stages before distributing the product.  It operates in three segments; CSL Behring, Intellectual Property licensing and Other Human Health.  The latter consists of CSL Bioplasma and CSL Biotherapies. Recently the company has acquired the Novartis flu vaccine business now making it the world’s second largest manufacturer. Whilst this may generate near term head-winds, longer term it’s expected to increase its profile significantly and turn a loss maker into a globally competitive business. For the six months ending the 31st of December 2016 revenues increased 17% to $3.68B. Net income increased 12% to $805.5M. Revenues reflect the CSL Behring section increase of 17% to $3.06B and the Seqirus section increase of 17% to $620M.  Broker / Analyst consensus is currently “Buy”.  The dividend yield is 1.4%.
 
Reasons to remain bullish longer term (short term weakness feasible).
→ Yesterday’s results impressed the market.
→ Reliability and a strong growth outlook.
→ Success in hereditary angioedema, doubling market share since 2011.
→ Progress on innovation is a highlight.
→ New product launches add to near-term growth prospects.
→ Underlying business shows solid sales growth.
→ Ongoing acquisitions offer strong gains in synergy.

We often talk about two potent patterns on these pages, one being divergence with the other being a falling wedge which are also known as ending diagonal triangles. The latter has been the pattern of interest on this chart with price breaking through the upper boundary with a degree of attitude late last year. More often than not price will then head toward the origin of the pattern in around one 3rd to half of the time taken by the whole prior trend down. In that regard our guidelines have already been met with the target being achieved today, with another close near the highs of the session.

Yesterday was  very interesting with indecision following the release of results. An initial sell-off brought out buyers in large numbers resulting in a wide-ranging bar and a close on the highs the day. This can only mean some of the smart money was taking everything that sellers could throw at them. Still, over the past few weeks price action at times has been parabolic in nature so it could well be that a pause or even a small retracement is on the cards. As long as price can stay above the zone of support the bullish case medium to longer term remains intact. That said, it’s not a prerequisite to higher prices to see a pull-back. Taking a quick look at the weekly chart (not shown) reiterates how strong the longer-term trend is with all-time highs exceeded today.

Trading Strategy

It would be perfectly acceptable to take profits on this trade, especially with the target out of the falling wedge being achieved. However, we are going to continue to hold although yesterday we tightened the trailing stop up to $111.75 which is yesterday’s low. A break beneath that level would suggest a deeper retracement is going to unfold although as mentioned above, it wouldn’t dent the longer term bullish case in any way. If you aren’t already involved patience is required as there is no low-risk entry at this stage.
 

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Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

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