CSL Risk Still To The Upside

Technicals | Jun 14 2018

Bottom Line 13/06/18

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $150.15 – $149.30 / $138.92
Resistance levels: 201.29 – $205.38

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 2017 revenues increased 13% to $4.15B. Net income increased 35% to $1.09B. Revenues highlight the CSL Behring section increase of 10% to $3.36B, the Seqirus section increase of 28% to $791.1M, the United States section increase of 21% to $1.97B and the Germany section increase of 15% to $405.9M. Analyst consensus is currently “Buy”. The dividend yield is 0.9%.

Reasons to remain bullish (short term weakness feasible).
→ The U.S FDA has approved Hizentra to treat neurological disease.
→ Sales growth continues to be robust.
→ A maiden profit from Seqirus could resulting in FY18 guidance being exceeded.
→ Volume growth expected for immunoglobulin/albumin.
→ Competitor weakness has been advantageous.
→ Exceptional earnings growth anticipated.
→ The recent launch of Haegarda could be a potential catalyst for the company.
→ Acquiring 80% of a Chinese plasma fractionator which should provide a foothold into China.
→ Ongoing acquisitions offer strong gains in synergy.

It’s always a good sign when you constantly need to squash the chart up to contain the price action which has been the case here for several months. We’ll come to the patterns in a moment although suffice to say the trend has been nothing short of exceptional for a significant period of time – in fact going back several years. Our last review concentrated on the monthly chart which showed no signs of distribution, with the uptrend continuing to gather pace. At some point of course a pause for breath needs to transpire although there is no sign of it kicking in right here and now. This is the daily chart which shows a bullish set of first and second legs. This means price should be heading higher within wave-3 of-(iii) of-iii which in simple terms means the strongest part of the trend should still be in full flow.

That said, we do have an area of confluence sitting between $201.29 – $205.37 which is an area to keep a close eye on for signs of profit-taking. That area consists of two projections at different degrees of trend which increases its significance. As mentioned above though there’s no indication that a significant retracement is going to unfold from those higher levels, with a sideways consolidation likely being the way forward – assuming it proves to be significant. One thing is certain, a push up through the upper boundary of that potential reversal zone portends a continuation up toward $218.21 and even beyond. Not surprisingly, the company is looking overbought on the monthly, weekly and daily timeframes and on this daily chart a weak example of bearish divergence is evident although it’s yet to trigger. I’m not overly concerned by it at this stage and it would take an immediate decline to even put a small dent into the current trend higher. The risk remains to the upside, at least over the coming weeks.

Trading Strategy

We continue to hold long positions from $173.21 and have now moved the protective stop to breakeven to provide a risk-free trade which is always a strong position to be in. Should price continue to head higher we’ll be looking to lock in some profits by adjusting the protective stop appropriately. Signs of distribution in the potential reversal zone would be reason to take profits although we’ll revisit that scenario should it start to unfold. If you aren’t already involved it’s best to stand aside until another low risk entry presents itself.

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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CSL