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Upside For Woodside

Technicals | Jul 30 2014

Bottom Line 29/07/14

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: $41.02 / $40.19 / $39.50
Resistance Levels: $42.75 – $43.05

Technical Discussion

Woodside Petroleum ((WPL))  is Australia's blue-chip oil and gas player with significant and successful exposure to the LNG sector. Its competitive advantages are its significant reserves of low-cost and expandable gas fields off WA. The Company operates six segments; North West Shelf Business Unit, Australia Oil Business Unit and United States Business Unit to name just a few. In June 2014, Royal Dutch Shell plc sold 19% in Woodside. For the year ending the 31st of December 2013 revenues decreased 7% to $5.93B. Net income decreased 41% to $1.75B.  The dividend yield is currently 4.6%.  Broker/Analyst consensus is “sell”.

Reasons to remain cautious:
→ There are doubts concerning Australia’s high cost developments.
→ Growth from exploration should not lead to production revenue until 2020 at the earliest.
→ Recent quarterly production data was slightly below estimates.
→ Recent negative media attention and various brokers moderately re-rating the company after recent strength.
→ After its recent strength a pause or minor retreat is not only healthy but highly probable.

It’s been a slow steady grind higher for Woodside since September 2011 although the company has gained over 46% since that time.  Usually we look for strong impulsive price action before getting overly confident in regard to a longer term trend unfolding.  That said, the stepping process that continues to unfold is just a characteristic of this company and therefore isn’t reason for concern.  During our last review there was a case for price heading down toward the line of support just beneath $40.00.  This is still feasible although the pattern that’s caught our interest here is a symmetrical triangle.  These patterns usually contain 5-internal swings with the high made a few days ago completing the 4th.  This means there is scope for short term weakness though during the final probe lower with this type of structure the lower boundary often fails to be met.  A decline down to around $42.00 would suffice in regard to the final probe south which would then open the door for a break to the upside.  It would take a break above the recent pivot high at $43.05 to suggest the next leg higher is already in progress.  Not our highest expectation without first getting a small retracement but a line in the sand to keep a close eye on over the coming days.  Either way, the next line of resistance sits up around $50.00 offering plenty of upside potential.

Trading Strategy

I’m not going to make a formal recommendation at this stage although if the triangle completes as anticipated it won’t be long before one is made – possibly before doing another formal review. It’s worth noting that a downside break out of the triangle would result in us looking for a buying opportunity around the old line of resistance/new line of support as annotated. However, at this juncture a decline of that magnitude isn’t anticipated with the more bullish trajectory likely being the path of least resistance.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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