The Metastock chart below is a daily chart dated September 16, 2016 reproduced in a post published September 22.
- Daily chart of Boral September 16
Over a period of 8 months, the share price of Boral had been re-rated higher from $4.80 to a high of $6.90 before easing back to support at about $6.
The technical expectation then was that the share-price might push above $7 if the uptrend were to continue.
2. Daily chart of Boral at November 25, 2016
Entry at the suggested signal (A) might have yielded a 40 cent capital gain two weeks later when the impulsive move touched $6.40.
However, the momentum petered out well short of the previous high. The lower high, and the sell-off which followed, created a head and neck chart pattern, then a down-trend, warning of still lower prices. This was about six weeks before the capital raising was officially announced on November 24, 2016, after a trading halt. The share-price then plummeted from about $6 to $5 (B), close to the issue price of the new Boral shares at $4.80.
3. Five year weekly chart of Boral Limited
In capital raisings such as this, shareholders are likely to feel constrained to take up the new issue to avoid dilution of their position. When it is a large issue, pitched at a substantial discount to the market, the share-price will likely gravitate downwards to the issue price creating a nervous wait for existing shareholders to see if demand for the new script will support the share-price from further falls. Furthermore they also face an extended wait for recovery of the share-price to its previous level. The fact that this $2 billion capital raising is fully underwritten is favourable in this regard.
Although charts may not be able to forecast the market response to a capital raising, the consistent uptrend of the share-price over the past five years is positive for the company, and augurs well for continuing growth into the US construction industry under the new Administration.
The present share-price weakness presents an excellent entry opportunity for new buyers. Existing shareholders with confidence in Boral’s management strategy have the opportunity to augment their position cheaply, anticipating additional growth in the longer-term.
The writer is a Boral shareholder who intends to take up this offer for further shares at $4.80, after selling a parcel at $6.35.
Retail investors are advised to obtain their stockbroker’s opinion in situations such as this.