Stockradar: Commonwealth Bank (CBA)
May 4, 2010
The market mire we have entered into now offers a rotten foul smelling mix of uncertainties, divergences, poor and good performances leaving us short of a rudder of certainties and trends to take comfort in. There is a message in there. Take the market on if you want but historical odds and current market sentiment says be careful hold plenty of cash and if you really need to buy something the banks probably offer the best and safest route with at least some yield return to offset any share price contraction and at least you are in a known solid business supported by the government. And by the way they ARE trending higher and that’s a strong argument in itself.
Miners can “wipe out” as we know so the resources tax on top of Chinese uncertainty is driving investors from what has been action central to never, never land but again interestingly enough it is the major miners that seem to be the “losing less” winners.
And yes we started the week yesterday with exactly that. Big miners weak without a major sell off, stocks such as the banks attracting attention again, but the body of the market is in bad, bad shape. Yes spikes of joy will appear and be short lived but it really is about the biggies now and that is a symptom of the uncertainty surrounding the stock market.
It just so happens that as the market tested 5000, and retreated, 3 of the 4 major banks “broke up and out” of the rotating trading range price structures that have dominated their trading action since last October and have now made New Highs since we touched the market lows in early 2009.
Can these breaks by the 3 banks be sustained?
CBA and WBC are indicating their intention to test highs as they are just below there, ANZ is a far cry from its highs above $30.00 (read opportunity), and NAB remains a lowly valued basket case with a penchant for shooting itself in the foot. There may be some leadership issues there that need to be ironed out. The market is about risk at the moment and NAB may be undervalued but are you willing to take on that risk? It seems not is the answer from most investors and traders. Interestingly it is our Leader’s portfolio that is one of the strongest performers this year and is recording positive returns despite the market being down for the year.
For the mining sector to recover there needs to be more certainty again and or a new commodities run neither of which are jumping out at me right now and that probably hinges on what the US dollar is going to do an it is still reacting up on good volume. Gold is probably the best prospect but is worryingly close to its highs and the game of NCM/LGL still being resolved. A strong Aussie dollar will and has hampered opportunities in the locally based miners but there may be some value in the offshore ones.
As I scour the market the real opportunities are limited and thus the demand has been maintained for the banks and this has been flowing through to some other leaders with WDC finally gaining some recognition, NWS has been piling on the gains for some time, MAP keeps bumping up the moving average road, ORI and AMC are steady achievers and I expect the better and steadiest performances to keep polarising around the leaders if for no other reason than the money has to go somewhere. Outside the leaders performances have become to flighty especially after some confidence was restored last year as we raced to 5000 but alas there we have stopped 3 times now and that exuberance is now waning.
Despite the resilience of the Dow Jones price analysis would suggest the odds are high now for our local market drift to at least the 4500 level and there we take stock again with a drop below 4500 sending the odds up for a further market fall.
But then there are the banks! How much support can they, and will they, offer the market? Status quo encourages that drift to 4500 but a search higher by CBA and WBC for those ultimate highs may yet offer another twist in the tail.
The important thing is they have broken higher which means demand is quite solid and this may be because they are “the” banks but also as a reaction to what is not going up and the money flowing out of those other stocks, especially those in the body of the market, may be finding its way back to the banks.
Let’s examine the CBA chart and see where probabilities of risk and opportunity lie and this analysis is the face value of what the price action is reflecting from a demand supply perspective and is devoid of the market “noise”.
The prevailing trend is at odds with the market as the CBA and WBC charts are both in defined up trends leaving the rest of the market floundering in a corrective circle since last October. 3 of the 4 major banks have done what the rest of the market couldn’t which is break to new highs!
So is the consolidation period over as CBA breaks above the trading range high opening up better odds of a test of the highs at $62.00 now and of course potentially above? It may be hard to imagine the CBA share price with a $60.00 in front of it again but volumes are steady; momentum has remained positively above the key zero level helping to define the price action as a consolidation, and at not one stage throughout this entire up move have we seen and danger of the stock making a trend threatening lower low.
I’m not entirely convinced yet of a sustainable breakout as market risks are clearly evident but the sheer weight of demand just keeps edging CBA higher and the rules of my TradePlan say buy this stock now. As to my perception of risk well that occurs when the stop loss is violated and I then simply move to back cash!
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