Aristocrat On Winning Streak

This story features ARISTOCRAT LEISURE LIMITED. For more info SHARE ANALYSIS: ALL

Bottom Line 26/06/18

DailyTrend: Up
WeeklyTrend: Up
Monthly Trend: Up
Support levels: $25.71 – $24.09 / $21.30
Resistance Levels: N/A

Technical Discussion

Aristocrat Leisure ((ALL)) provides gaming solutions. The Company's main activities include design, development and distribution of gaming content, platforms and systems. The Company's sections include The Americas, Australia and New Zealand, Digital, and International Class III. The Company offers a range of products and services, including electronic gaming machines and casino management systems. The Company also operates within the online social gaming and real money wager markets. Through Video Gaming Technologies, Inc. (VGT), it develops, manufactures and distributes casino games for the Class II and emerging markets. It offers Oasis 360, which is a casino management system and contains a portfolio of open-platform technologies. It also offers System 7000 casino management system. For FY17 underlying net profit was up 36.5% to $543m. The company continues to envisage continued growth in FY18. Broker consensus is “buy”. The dividend yield is 1.3%.

Reasons to remain bullish:
→ Yesterday’s results and investor presentation taken well by the market.
→ The proposed acquisition of Big Fish viewed as being positive by brokers.
→ Growth in high-quality recurring earnings.
→ Significantly improve cash flow.
→ Share in the North American gaming operations.
→ Diversification due to the acquisition of Plarium.
→ Lightning links has underpinned FY17 earnings with Dragon link looking positive into FY18.
→ Plenty of products in the pipeline to drive growth until 2022.
→ Improvement in the US economy likely to drive earnings.
→ Exceptional trend behind it.

There was still every reason to be optimistic during our last look at ALL, especially as price had just gapped higher following results. Our only concern over the short-term was Type-A bearish divergence which had already triggered. This just highlights how important divergence can be as it rarely proves to be insignificant, even within exceptionally strong trending stocks like this. Price started to retrace right on cue and remained weak until our oscillator rotated all the way down into the oversold position which also locked in a low which is textbook.

Bigger picture there is no reason why price can’t head higher into blue sky territory and continue up to make new all-time highs. There is no high probability wave count on this chart meaning we simply go with the flow until signs of distribution starts to show, which at this stage is conspicuous by its absence. The trend is up, it’s strong and there’s no reason to fight it. Zooming into the more recent price action appears to show a small Cup & Handle, with today’s low ideally locking in the handle. However, we wouldn’t want to see a deeper retracement as the pattern is already stretched due to the depth of the retracement over the past few days.

Price needs to head up through the recent pivot high at $32.05 immediately for the pattern to trigger which would set the stage for continued strength. The gap left last Thursday has also been filled which again means we are in a position to see a resumption higher. The gap left due to results on the 24th of May could also be filled although this is not a prerequisite to higher prices. It’s just something to bear in mind should price continue to head south.

Trading Strategy

If you want to jump onto a strong trending stock then buy following a push up through last Thursday’s high at $32.05 with the protective stop placed just beneath the minor pivot low at $29.36 – or if you want to allow a little more wiggle room at $27.57 as this would keep you in the trade should the lower aforementioned gap be filled. With no target area in place a trailing stop should be used to manage the position.

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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