a2 Milk Souring

Technicals | Sep 02 2020

a2 Milk ((A2M))

Bottom Line

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Neutral
Support levels: $17.42 – $17.08 / $13.55 / $11.28
Resistance levels: $13.85 – $13.55 / $11.28

Technical Discussion

Reasons to be cautious short term:
→ Several of the leadership team have sold around 50% of their holdings.
→ The company appears to be facing problems with excess inventory.
→ Long-term issues due to competition, geopolitical risk and regulatory risk.
→ A deal with NZ’s Mataura Valley Milk could strengthen relationships with China.
→ Broken down through a line of support.

The lower boundary of an ascending triangle was under pressure during our last review. Continued weakness suggested an interim top was in place. It has proven to be the way forward, with weakness continuing over the past few weeks. Some of the reasons mentioned above could be driving price lower. There is still downside potential over the coming weeks.

The wave count isn’t ideal as there’s plenty of choppy price action off the November 2019 lows. However, the best interpretation is that the June high completes wave-1 or-A. Lately price has been heading down with some attitude, which is concerning. That said, a retracement should conclude in the 50% – 61.8% retracement zone as annotated either side of $15.00. What we don’t want to see is a straight-line leg down. Anything other than a corrective pattern will ring the alarm bells. In other words, we need to see a bounce sooner rather than later.

Yesterday price headed down through the line of support just above $17.00. As usual, it should be acting as resistance during any subsequent bounce. From a volume perspective all is not well. Over the past week or so it has increased significantly during weakness. It’s more indicative of the smart money exiting rather than it being mum and dads. Any bounce from here coupled with low-volume would set the stage for continued weakness further down the track. It would now take a push up through $20.05 to move back to a bullish stance. Not looking likely at this stage.

The saving grace for the company is that the longer-term uptrend is firmly intact. In fact, it’s been one of the strongest performers on the ASX over the past few years. Recent weakness isn’t ideal, but it hasn’t put much of a dent into the bullish bigger picture outlook.

Trading Strategy

If you are looking for shorting opportunities, it’s one to consider. A lacklustre bounce to new resistance followed by weakness would provide a low risk entry. However, it’s better suited to the short-term trader as downside appears limited. At this stage we are looking for a continuation down into the typical retracement zone only.

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).

This report may contain advice that has been prepared by The Chartist Pty Ltd (ABN 40 641 323 051). The Chartist Pty Ltd is a Corporate Authorised Representative (CAR No. 1282007) of Shartru Wealth Management Pty Ltd ABN 46 158 536 871, AFSL 422409. Any advice is considered general advice and has been prepared without taking into account your objectives, financial situation or needs. Because of that, before acting on this advice you should therefore consider the appropriateness of the advice having regard to your situation and your own objectives, financial situation and needs. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. If the advice relates to the acquisition, or possible acquisition, of a product (other than a security e.g. a CFD) then the client should obtain the relevant Product Disclosure Document and consider it before making any decision about whether to acquire the product. Past performance is not a reliable indication of future performance. This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information.

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A2M