Not Time To Buy ANZ

This story features ANZ GROUP HOLDINGS LIMITED. For more info SHARE ANALYSIS: ANZ

The Bottom Line 19/05/15

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: $30.47 / $28.84
Resistance Levels: $34.56 / $35.20 / $37.25

Technical Discussion

ANZ Bank ((ANZ)) is one of Australia's "Big 4" offering a range of banking and financial products to retail, corporate and institutional clients. Whilst ANZ is best known in Australia and New Zealand, it has a significant business in Asia. In July 2014 the company completed the sale of ANZ Trustees Ltd to Equity Trustees Ltd. For the six months ending the 31st of March 2015 interest income increased 7% to A$15.39B. Net interest income after loan loss provision increased 6% to A$6.64B. Net income applicable to common shareholders increased 3% to A$3.51B.  Broker/Analyst consensus is currently “Hold”.  The company pays a dividend of 5.4%.

Reasons to be cautious.
→ ANZ is reportedly trading at a 14% discount to its peers.
→ Asia slowing could be problematic, especially if U.S rates rise.
→ National Bank is a competitor and looking stronger than it has for some time.
→ Asset quality could be problematic due to its exposure to mining services.
→ Earnings include trading profits which will be adversely affected during a correction.
→ Recent strength has been based on the latest profit announcement.

It was back in late March when we last took a look at ANZ but even back then warning signs were starting to show.  In fact we put forward several reasons to be cautious albeit short term strength was anticipated.  That’s pretty much what’s transpired although our target area wasn’t quite tagged.  In theory the target zone could still be met although that’s now looking extremely unlikely.  It all comes down to the severity of the recent decline as opposed to the actual pull-back itself.  Looking at the weekly chart here shows that the current retracement is nothing in the bigger scheme of things which puts things in perspective somewhat. 

However, what’s been catching our attention is the way in which the sell-off has transpired; it’s been strong and impulsive in nature which is something that hasn’t been seen for very long time.  Until recently retracements in pretty much all of the banks has been choppy and corrective in nature which meant the longer term uptrend was intact.  This time around the almost straight line movement lower implies something a little more sinister is going to unfold.  That said, a significant retracement from current levels isn’t anticipated.  The patterns portend to more of a long drawn out consolidation phase with downside being reasonably limited.  If, as anticipated we are seeing a larger degree 5-wave movement higher then the current retracement is the early stages of wave-4.  The bottom line is that a sideways meander with a bias to the downside could well be the way forward for the foreseeable future.

Trading Strategy

The banking sector clearly isn’t the place to be at the moment and although it is looking oversold and due a bounce there is no reason to try and trade it.  The one positive for the big four of course is that further weakness makes the already attracted dividend even more appealing.  One would assume this is going to limit downside which in this instance fits with our analysis perfectly.  For the moment we’ll stand aside from ANZ and focus our attention elsewhere with the resource sector and smaller cap stocks looking much stronger.
 

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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