Commonwealth Bank: Upside Limited

Technicals | Mar 23 2022

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA

Bottom Line 22/03/22

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: $92.37 – $89.20 / $76.75 / $67.47 – $64.46
Resistance levels: $110.19 (all-time high)

Technical Discussion

Reasons to be more optimistic:
→ Australian banks have been outperforming recently.
→ Australia’s exposure to commodities, rising interest rates and strong capital position are tailwinds.
→ The banks should benefit from impending RBA cash rate rises.
→ Has above-system loan growth, good asset quality and strong transaction account growth.
→ Has kicked higher out of a consolidation pattern with conviction.

During our last review of Commonwealth Bank ((CBA)), we noted that the patterns needed to improve to get the bullish case back on track. Although weakness immediately kicked in, strength over the past three weeks has been a big confidence booster.

The leg higher has been strong and impulsive in nature and could even be called parabolic. It’s only over the short term but we couldn’t have asked for anything more. For some time now we’ve been commenting on the fact that brokers have been less than enamoured with the company.

Most have stated it’s the least preferred out of the big four. Our stance hasn’t altered. It’s been our favoured for over a decade. It’s still the case. Over the longer term, it’s difficult to argue with the potency of the trend. However, if you like combining fundamental and technical analysis, the divergence in opinion isn’t ideal.

Last month wave-(iii) was in position, with the subsequent retracement well underway. At that stage, we didn’t know how wave-(iv) was going to unfold, as symmetry was lacking. It’s no longer the case. It’s uncanny how many times wave-(iv) unfolds as a triangle, which has been the way forward here.

In fact, it would be difficult to find a better example of an Elliott triangle. They should contain 5-internal swings labelled-a through-e. Now wave-(iv) is in position, impulsive price action should be the main theme until the wave equality projection is tagged. As wave-(iii) extended there’s a good chance that the current leg higher will be similar in length to wave-(i). If broader market conditions continue to improve, another extended leg could be the way forward. That’s something to touch on later if the wave equality projection is overcome.

Over the short-term price is looking stretched to the upside so a pause wouldn’t go amiss. Even a short correction would be fine and set up the next leg higher. It would be ideal to see some type of a small corrective pattern as it would provide an opportunity to jump on.

One thing we must be cognizant of is that once wave-(v) is in place it will likely complete a larger degree wave-3. That should be followed by a more significant retracement. Again, it’s something to look at in more detail further down the track.

Trading Strategy

Unfortunately, we missed the break higher out of the triangle. A short consolidation or small corrective pattern would present an opportunity if you are a short-term trader. That said, if our larger degree wave count is correct, the upside could be limited. We currently have exposure through Westpac ((WBC)) although we are on the lookout for other opportunities in the banks.

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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CHARTS

CBA WBC

For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION