WOW – A Chart Review of Woolworths

Woolworths was once clearly dominant over supermarket rival Coles. No longer. It took radical re-structuring under the banner of the West Australia conglomerate owner of Australia’s largest hardware chain Bunnings, Wesfarmers, to turn Coles around after years of under performance.

The decline of Woolworths over the past year is not however a consequence of renewed competition from Coles, but would rather appear to be self-inflicted; a consequence of an attempt to compete with Wesfarmers in the highly competitive hardware market.

This post focuses on whether from a technical perspective it is yet time to back Woolworths to stage a recovery in its share-price after falling from a high of $ 38.92 to $27.  Yet to come could be write-downs, and restructuring, perhaps under new management. What is to be done with the Masters hardware stores? How will Woolworths respond to the growing threat of the low priced German Aldi chain stocking only the essentials in bulk? Will they need to cut the high profit margin that supports their many up-market supermarket stores?

These are questions that readers  holding stock, or looking to buy into it for the first time, should direct to qualified financial advisers, taking into account their risk profile and investment requirements.

Weekly candlestick chart of Woolworths over the past 5 years.

Still trending lower

Still trending lower

Observations

  • The down-trend of nearly 18 months remains intact to the present time. In December 2014 a rebound was initiated which carried the share-price from the 61.8% Fibonacci level back to the 38.2% level. But there was a high volume sell-off at the end of February 2015 which carried the share-price sharply lower, this time sinking through the 61.8% level at about $29.50 to support between $27 and $29.
  • There was another spike in volume corresponding to the low of $26.50 to $27 as a pattern consistent with an inverted head and shoulder pattern formed in the last four months.
  • The chart shows a bullish divergence in this time, but prudent retail investors would wish to see this signal confirmed by a clear trend reversal first before taking a long position.
  • This might be  likely if the share-price were to make a new high above $29.50. Conversely if the share price were to break support at $26.50, then the next likely support level could be at $23.50.

Conclusions

Woolworths has long been an outperforming stock to have in one’s portfolio. Return to upwards trending will emerge, but investors should continue to patiently monitor the share-price to avoid loss.



Categories: Chart Review

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