CSR Limited

By Kenneth Robson on May 4, 2018 • ( 0 )

There is a memorable trading epigram that although lacking in rationale, seems to often prove empirically to be good advice.

“Sell in May and go away”

No one knows who coined the saying and why, but it may have come about as a result of the month of May in the Northern Hemisphere heralding the coming of the leisure filled summer days, when investors took profit, and departed for a well-earned rest. At the same time some potential buyers were away holidaying over summer.

In Australia there is often a decline in the market created by end of the year selling of market laggards in investors portfolios to offset capital gains tax on stocks they have sold. This often results in a dip in the market from which traders may benefit.

The Metastock chart below with ASX data supplied by Paritech of CSR Limited shows a situation which perhaps affords investors an opportunity to test the validity of this saying.

5 year weekly chart of CSR Limited

CSR after 4 years of consecutive growth in full year after tax earnings has now reached a price high of $5.79, and the RSI Indicator is in over-bought territory.

There is a strong upwards trendline of just on 12 months duration, which is still intact to the present, so there is no technical reason why the share price should not continue to rise.

Furthermore, I doubt that there will be a fall in FY earnings after tax and significant items at the AGM scheduled for 27 June 2018. Rather one would expect a continuation of the earnings momentum, another lift in profit, and a rise in the share-price.

Yet seasoned market players will be aware that market response sometimes inexplicably fails to mirror the profit outcome. Indeed on the 12/05/17, the 25% increase in profit to $177.9 million after tax and significant items, a 5 year high, was greeted by the market with a dramatic 94 cent fall in the share price, from which it recovered over the past year.

The market has a mind of its own, never entirely predictable. Sometimes the aphorisms of savvy traders of yester-year may prove worth heeding.

Readers are urged to always seek the advice of their stock-broker or qualified financial adviser before making investment decisions when in doubt.

Addendum 12/05/18

3 Year Weekly Chart of CSR

The post above, written a week ago, raised the possibility of a fall in the share price in fulfilment of a time honoured trader adage, “Sell in May and go away”.

This week’s 70 cent share-price fall to $5.19 in the week ending 11th May 2018 however, obviously had more to do with the profit result (a 16% lift in NPAT after significant items to $212.7) announced on the 9th May 2018 for the FY ending 31 March 2018. It would seem that traders took advantage of the share-price reaching a 6 year high, to take profit, in exactly the same manner as occurred a year ago in the week ending 12th May 2017.

This large range share-price fall is likely to be followed by a rebound, one would think, but the candlesticks of the past two weeks has formed a bearish engulfing pattern, suggesting further falls are likely before this happens. Traders with a technical bent will monitor further share price movements to see if support at about $5.10 holds