Chart 1 – Australian Agricultural Company (AAC)
Technical analysis records past trading behaviour, and suggests the likely direction of further price movement. It warns of the need to re-think and perhaps adjust one’s trading strategy when the share price moves contrary to expectations.
One such situation arose on the 27/01/17 with Australian Agricultural Company when support at about $1.55 was broken. Commonly the share-price will then decline quite quickly to the next level of support, in this case at about $1.20. To complicate matters, this is not always the case. Trading support could emerge before this if the market considers sellers have over-sold the stock.
In this case a triangular “holding” pattern has formed until the market makes up its mind whether or not to reverse or continue the downward trend. The RSI has been bouncing around at 30, the over-sold level. For this reason I have refrained from selling down my holding, and have even bought additional shares, mindful that this will add to my losses if I am proved wrong.
Chart 2 – Commonwealth Bank (CBA)
Two months ago the share-price of CBA penetrated resistance at $79 and rose strongly to a high of $85.65 6 weeks later, before easing.
Chart watchers may have noticed that the share-price has now entered into a triangular consolidation (or holding) pattern which must soon be broken. If it breaks to the upside then it could resume trending upwards. If it breaks to the downside, support at $79 is likely to be tested.
CBA is about to deliver its profit report, and a dividend usually in excess of $2 per share declared. So called “dividend strippers” push the share-price higher in the lead-up to the profit result. Other traders prefer to forego the dividend to capture capital gains, and then to re-enter more cheaply. Your guess is as good as mine as to which strategy is likely to be more profitable.
These chart reviews seek to draw the attention of readers to well-known technical features that could be of relevance to them. They are not a professional opinion, and do not replace the need for proper advice.
The writer has shares in both the above companies.