Pick right time to target Wesfarmers

 The recent declines in the Wesfarmers share price are creating opportunities for savvy investors. Technical analysis has pinpointed the price that’s right for a plunge on the coal-to-Coles conglomerate.
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Like much of its listed retail cohort, Wesfarmers has seen price strength earlier in 2013 give way to weakness. And the recent news of job cuts at its Target operation has deepened the negative sentiment. On Wednesday, shares were down 63¢ at $37.23 – a five-month low.

This weekly price chart, produced by technical analyst Mark Umansky, shows Wesfarmers was held in a congestive range between $28 and $34 a share between May 2010 and August 2012.

In August 2012, it rose to $35.12. However, the stock was soon in another congestive pattern for the following three months.

These congestive phases, interspersed by an upturn, are typical of a market testing the support-and-resistance levels before a big movement. When the breakout came in November last year, it was strong with the stock climbing 22 per cent to a record high of $43.12 a share. Once Wesfarmers reached this pinnacle, it fell back quickly to $40 a share, where a new support level was created.

The market then retested the highs, and a ”minor double top” formation developed. Then the stock fell back, going into what Umansky describes as ”free fall”.

A reversal from a double-top formation is likely to lead to a fall from the breakdown point (where the stock fell through $40) of the same magnitude as the distance between the top and bottom of the double top formation. That means the next target is $36.60.

Should this position not hold, then the next support level should be $35, which is the upper resistance in the second of our congestion channels. If that fails then $34, the floor of the second resistance channel and the upper level of the first, should provide the next support level.

Umansky says investors should wait until a new support level is established before entering the market and set stop-losses just below that support level. When such support appears, the chart suggests good opportunities in Wesfarmers.

This column is not investment advice. [email protected]杭州夜网m

The original release of this article first appeared on the website of Hangzhou Night Net.

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