Altium: Setting Up For The Next Leg Higher

This story features ALTIUM. For more info SHARE ANALYSIS: ALU

The Chartist reports share price weakness into the retracement zone would be the ideal set-up for the next leg higher for shares in Altium.

17/1:
Daily Trend: Up
WeeklyTrend: Up
Monthly Trend: Up
Support Levels: $24.97 – $23.11
Resistance Levels: $45.30 (all-time high)

Reasons to be cautious (upside potential short-term):
→ There has been good progress in the first four months of FY23.
→ Recent price increases should support growth in the core Design Software business.
→ There’s been a pick-up in hiring activity but momentum looks to be lower than implied opex growth guidance.
→ There are concerns about the impact from the softening macro context on growth prospects.
→ Bullish longer-term patterns.

Over the years Altium ((ALU)) has been a star performer, with strong clean price action the main theme. That is, up to the high made in early 2020.

Since that time, a consolidation phase has been taking place. Not ideal if you’ve been a holder over the past couple of years, but from a pattern perspective it’s nothing out of the ordinary.

In fact, we are viewing it as being bullish in the bigger scheme of things. As we often state, every trend needs a pause. Ideally, it’s setting the stage for the multi-year trend to reignite. More recently price action has become impulsive in nature which is exactly what we want to see.

We’ll run through the larger degree patterns first, as we have amended the smaller subdivisions. The early 2020 high completed wave-1 or-A on this weekly chart. That was followed by what’s as known as a running flat correction.

This is where wave-(b) probes above the high of wave-1 or-A, even though it’s part of a corrective pattern. Wave-(c) should terminate slightly above the low of wave-(a) which has been the case here. An expanded flat is exactly the same apart from wave-(c) terminates below the low of wave-(a) rather than above it. There are both solid continuation patterns.

Zooming into the more recent price action shows we have changed things around slightly. It’s now likely that a small 5-wave move completed intermediate degree wave-(i) a few weeks ago. If correct, the recent move lower is only the first leg of an ongoing countertrend move.

Wave-(ii) often unfolds as a zigzag which is what we are looking for here. A symmetrical 3-wave move down into the typical retracement zone as annotated would be ideal. As long as buyers step up at those lower levels the bullish case medium to long term remains in place.

One thing we don’t want to see is a push beneath the 61.8% retracement level. The further price gets down through that key level, the greater the chance something less bullish is unfolding. It would also likely result in price being drawn toward the zone of support which is a decent percentage decline from current levels.

For now, the patterns show symmetry so let’s see if we get our wanted probe down into the 50% – 61.8% retracement zone.

TRADING STRATEGY

If you are looking for a strong trending stock that appears to be getting ready for another leg higher, ALU is worth considering. In the meantime, patience is required.

We’ll be on the lookout for a continuation down into the typical retracement zone followed by strength. Should this transpire our interest in a trade will be rekindled.

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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