CSL Marching Higher

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

Bottom Line

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $128.90 -$125.91 / $121.25 – $117.19 /  $108.68
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 1.2%.
 
Reasons to remain bullish (short term weakness feasible).
→ Recent entry into the Chinese market.
→ Benefiting from the plasma supply bottlenecks as CSL can increase supply.
→ Recent 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.
→ Ongoing acquisitions offer strong gains in synergy.

CSL is one of those stocks that just keeps on going with any small dips being bought by traders and investors waiting in the wings to get a piece of the action. The latest spurt higher followed a small consolidation pattern which took the form of a descending triangle. Due to the almost straight-line movement higher from December last year, it’s difficult to put a high probability wave count on this daily chart although there’s always one thing we can look for. Triangles normally occur in the wave-iv position which is exactly how we have annotated this chart. Should this be correct, what should be the final leg higher at this degree of trend should be underway.

One thing is for sure though, there’s no reason to try and fight this trend as the patterns could continue to subdivide higher in an even more bullish pattern. It’s a heavyweight company which continues to March onwards and upwards – we are very happy to follow its progress, especially as we are holding long positions. Brokers continue to like the stock although a few are suggesting that fundamentally it’s looking a little stretched. That said, the good news continues to roll in. Management have been looking to get into the Chinese plasma market for several years which is now a box that can be ticked. It’s acquired a small Chinese fractionater which should open the door to a high-growth, albeit highly regulated market which reduces risk. CSL is the first foreign company to have full access to the Chinese market which is likely the reason for the recent strength in the share price.

Back to the chart shows it would take a push beneath the lower boundary of the triangle just under $129.00 to suggest wave-v is in place. There’s also the possibility of some bearish divergence on the weekly chart (not shown) although this still needs to prove itself and trigger before suggesting an interim top is in position. It’s just something to keep an eye on over the coming days and weeks.

Trading Strategy

We have been moving the trailing stop up to reduce risk since we initiated positions back in December of last year at $98.00. We still need to leave the position room to breathe although tonight we are going to adjust the trailing stop up to $128.80 which is just beneath the lower boundary of the descending triangle. As mentioned above, a break beneath that level would suggest a 5-wave movement higher has completed which in turn would open the door for a deeper retracement.

If you aren’t already involved then continue to stand aside, at least until another low risk entry like the descending triangle presents itself. Keep an eye on the position status page for amendments to the trailing stop over the coming weeks.
 

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