Wesfarmers: Testing Resistance

This story features WESFARMERS LIMITED. For more info SHARE ANALYSIS: WES

By Michael Gable 

Our call from last week that the US market will take a breather seems to be coming to fruition. We still do not expect a sharp pullback yet, as there are still plenty of bears thawing out with cash on the sidelines who are realising that they need to get more involved.

We only need to see the number of analysts slowly backtracking on their recession calls to understand that dips will be bought. Despite the decent bounce overnight in the market, investors still seem to be looking for reasons to lock in a few profits at the moment. A case in point is the discussion around the US 10-year yields. It has spiked recently and with it, the articles describing why we need to be worried.

Let us remind you that for a number of months now, we have been warned about the inverted yield curve. This is where short term yields go higher than the long-term yields. In layman's terms, investors use this as "proof" that recession is on the way because higher rates now will crush the economy and lower yields later on signify the need to stimulate a poor economy.

However, what we are seeing now are those long-term yields move back up. The yield curve is becoming less and less inverted. You may have therefore noticed that whatever the long-term yields do, people will find a bearish case for it. That, in an unscientific way, is how you can tell that the market is due a breather. Investors are looking for reasons to take profits after a decent run – any news is bad news at the moment.

We have US CPI on Thursday and that could provide a catalyst for the next move. We also enter reporting season locally where expectations seem to be fairly low. Do we get a positive surprise or not? Either way, a bit of short-term weakness is healthy here and we should use that over the next several days or so as an opportunity. In terms of stocks, today's report has a chart on Wesfarmes ((WES)).

The WES chart has been fairly messy over the past several weeks, but we are now starting to see a clear level of resistance emerge near $50.

The past few days has seen WES hover near that $50 level which means that it could be getting close to breaking out.

A daily close above $50 with good volumes would be the buy trigger and initial stops could then be placed just under that line. However, if that were to occur, then the next line of resistance is nearby at $52.

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Fairmont Equities is a share advisory firm assisting Private Clients with the professional management of their share portfolio. We are based in the Sydney CBD but provide services to private clients across Australia. We believe that the concepts of fundamental analysis and technical analysis of stocks are not mutually exclusive. Regardless of whether you are a trader or long term investor, combining both methods is crucial to success. As a result, the unique analysis of Fairmont Equities is featured regularly in the media such as Sky News Business, CNBC, The Australian Financial Review, and the ASX newsletter. Contact us for a free trial of our research and information on our portfolio management services. 

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Fairmont Equities Australia (ACN 615 592 802) is a holder of an Australian Financial Services License (No. 494022). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
 

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