The A2 Milk Company chart review

This is a 12 month daily candlestick chart of the New Zealand born A2 Milk Company, provided by Metastock and using data supplied by Paritech.

The difference between A1 and A2 milk is limited to one amino-acid, histidine instead of proline, in the long amino-acid chain of milk protein Beta casein. Yet health advantages are claimed from drinking milk produced by cows that produce predominantly A2 milk.

I remember noting in March last year that the share-price of A2M was just over $2 per share. Who would have thought it would rise so quickly as to reach a high just a week ago of $13.20? I certainly did not. I expected steady gains but a much more pedestrian performance, based on the gentle upwards trend trajectory at that time.

 

A2M Apr 18

The A2 Milk Company

 

This point illustrates a limitation inherent in the use of technical analysis. Like barometer readings which rise and fall with atmospheric pressure changes, suggesting imminent fine or inclement weather, so share-chart price and volume fluctuations reflect past and present general market sentiment, but do no more than hint at future market potential.

How might a technical analyst interpret the most recent price action of the past six weeks? I can only express my personal opinions:

  • Shown is a euphoric market response to the release of a positive 1H 2018 profit report result, and further growth prospects, 21st February 2018.  https://www.asx.com.au/asxpdf/20180221/pdf/43rrbkhkcsr82z.pdf
  • Within 24 hours, overnight gapping and a subsequent large range trading day saw the share price lift $3 from about $8.70 to $11.70.
  • It  is inevitable that profit-taking will follow such a large gain, so it is unsurprising to notice the emergence of a consolidation pattern with support at $11.50. Suggestive of a possible change in trend is the somewhat tentative formation of a head and shoulder pattern, and the start of a downward corrective Parabolic movement.
  • The RSI is presently trending lower after entering the over-bought zone above 70%. Further drifting of the share-price, reverting to the mean, would seem likely.
  • If asked to attempt to predict a level to which it might fall and again attract buyers, I would suggest that extrapolation of the trend-line might offer a feasible target of around $8.80.  Alternatively there is a strong support level at $6.50.

Investors in A2M are urged not to rely on technical analysis alone for guidance, but to continue to carefully monitor its trading prospects and future price movements. They should seek professional advice from their broker or financial adviser when appropriate.

 

 

 



Categories: Chart Analyses

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