CSL chart review after falling 7%

By Kenneth Robson on February 11, 2015 • ( 0 )

Australia’s largest pharmaceutical company, and market darling CSL Limited, today experienced a dramatic fall from grace after yesterday reaching $90.84 in intra-day trade. The share price early was down as much as 9.5% to $81.48 before rebounding to about $82.90 for a 7% fall.

Such precipitous falls invariably catch investors unawares, especially when they follow a reasonable profit report. The challenge for chartists is to form an opinion as to the most likely future direction of further price movement, on the balance of probabilities, and to formulate strategies to manage whatever scenario emerges.

This is a daily candlestick chart of CSL Limited over the past year or so, with multiple moving averages superimposed.

CSL falters after 1H 2015 profit results

TA observations

In the six months since August last year, the share price of CSL has been locked in a steady uptrend from a low of $64 to yesterday’s high at $90.84. This has been against the general market trend led by Energy and Mining stocks.
Since the start of the year the momentum of the increase has diminished, but in spite of this the share-price has continued to make new highs, whilst the lows have respected support at $82.80.
The fall today has temporarily penetrated this support, broken through all multiple moving average traces, and broken below the trendline.

TA opinions

Although the severity of the fall today warns of the possibility of further declines, quality stocks such as CSL are likely to rebound quite quickly. The sooner it rebounds and the greater the extent of the rebound, the more bullish would be the outlook for CSL
A second round of falls in the next few days below $82.80 support would suggest lower prices and a need for stop/loss selling.
The next support level is at $78.
The milestones to be passed in a rebounding stock-price are Fibonacci retracement levels at $85 (38.2%), $86 (50%), $87 (62.8%), $89 (previous resistance level) and $91 (above the last high).
Evidence of a strong rebound would suggest that it was safe to increase or enter long positions. A possible entry level might be $85 with an initial target of $91.

My judgement

The most likely outcome in my opinion is a resumption of the still intact upwards trend.