Caution Required On Goodman Group

This story features GOODMAN GROUP. For more info SHARE ANALYSIS: GMG

Bottom Line 13/07/17

Daily Trend: Down
WeeklyTrend: Down
Monthly Trend: Up
Support Levels: $7.50 / $7.21 / $6.78
Resistance Levels: $9.18 /  $10.24 / $11.34

Technical Discussion

Goodman Group ((GMG)) is an Australia based integrated commercial and industrial property group. The Company is engaged in investing in industrial property, fund management, property services and property development, including development management. It owns, develops and manages real estate, including warehouses, logistics facilities, industrial estates, business parks and offices globally. It also offers property solutions for various industries, such as logistics, pharmaceutical, automotive, e-retail and retail. For the six months ending the 31st of December 2016 revenues decreased 14% to A$760.9M. Net income decreased 39% to A$556.8M. Revenues reveal the operating section for Continental Europe decreased 29% to A$389.5M whilst the operating section for the United Kingdom decreased 64% to A$23.3M. Broker consensus is “Hold”. The dividend yield is 2.7%.
 
Reasons to be bullish (caution short-term):
→ Management confident regarding the outlook for FY18.
→ Returns on assets in development are continuing to rise.
→ Management and development businesses sure strong active earnings.
→ Stabilisation of yields a possible catalyst for strength.
→ The company expects earnings per share to grow between 6% – 7%
→ Benefiting from the structural shift to e-commerce by consumers & retailers.
→ A strong balance sheet offers scope to choose inexpensive developments.
→ Geographical diversity.

It appeared that buyers were starting to wane during our last look at GMG with some choppy price action starting to take hold. This was an early warning sign which begged the question as to whether an interim high was about to be made. The following session saw sellers return which has resulted in a decline of just over 12% down to the recent pivot low made yesterday. The prior trend is exceptionally strong with this stock so this isn’t major reason for concern although there is no doubt that impulsive price action has become the main theme on the way lower. In fact, the typical retracement zone has almost been tagged which in itself is reason for concern.

Remember, we must see a corrective pattern down into the target which at this stage simply hasn’t transpired. One thing is certain, should impulsive price action take price down into the 50% – 61.8% retracement zone then a much deeper retracement is going to unfold. In other words, if we are to see a corrective pattern down then a bounce needs to materialise immediately. Anything other than an immediate rally would mean the wave count put forward here is incorrect which would obviously be less than ideal. This would result in a larger and more severe corrective pattern likely unfolding before the strong prior uptrend reignites. If we are looking for positives, then minor Type-A bullish divergence is in place on this daily chart although it’s yet to trigger. If it does, then our wanted corrective pattern higher should kick into gear.

Trading Strategy

We’ve been noting the impulsive nature of the retracements in many stocks that we cover over the past few reviews which is exactly the situation here. This is reason to be cautious and it could well be that the next opportunity is going to be to the short side following a lacklustre bounce from current levels. If you’re waiting to jump onto the strong longer-term uptrend, it should be several weeks as a minimum before an opportunity arises, and that’s assuming a 3-wave movement completes in the target area as annotated just beneath $7.50. Either way, there is no opportunity at this stage.
 

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).

Risk Disclosure Statement

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