Taking stock of Australia’s top 20 companies

The Australian market is up around 10% this year … and here's the story in charts.

Summary: Australia’s 20 largest stocks by market capitalisation are the key drivers behind the stockmarket’s 10% gain since the start of the year. But the broad gains in the industrials sector have been offset by weaker performances from the big resources companies.
Key take-out: Both AMP and Telstra feature significant milestones on their price charts.
Key beneficiaries: General investors. Category: Portfolio management.

From January this year the Australian sharemarket, gauged by the All Ordinaries Index, is up around 10%. This has been largely driven by the industrial sector being up around 12%, and the lagging resources sector down by 2%. The following report looks at the top 20 stocks in the market, highlighting the differing performances between the sectors from a technical analysis view point. From the top 20, both AMP and Telstra feature significant milestones on their price charts.

Note: an explanation of some of the terms used in this report can be found at the end.

AMP $5.34

Trend Change

AMP’s share price has experienced a roller coaster ride since its infamous listing in 1998, suffering dramatic sell-offs and powerful recoveries. The most recent downward trend from 2007 suffered a deep sell-off into 2009, doubling its price within six months only to slump back into decline. From mid-2011 into 2012 the price found a shelf of support in the $3.60-70 area and mounted what appears to be a more sustainable recovery.

The downward trend was broken with the price rise through $4.50 in October last year and the price has rallied strongly since then to encounter resistance in the $5.60-80 zone. This area combined with a slowdown in the near-term momentum may continue to check the price over the near term. Support is located in the $5.10-20 area, and then lower around $4.80-90 and more importantly at $4.40-50 as a drop below this level could seriously delay or negate the new upward path.

When the upward path continues on a break above $5.80 the next obstacle would be reached in the $6.80-7.00 region and then closer to $9.00.

Australia and New Zealand Banking Group (ANZ) $29.20

Rebuilding Momentum

With a history dating back 175 years, the share price of ANZ for about the last 40 of those years has risen progressively, with 2009 bringing a steep adjustment to that trend in much the same way as it did in 1974. Looking a little closer I find that the share price has been moving within a well-defined channel since the late 1980s with two steps outside. The first one occurred to the downside in the early 1990s and then to the upside in 2006-7. Both of these events were due to momentum thrusts taking the price outside its normal parameters.

The 2009 sell-off was encased within the trend and likewise the subsequent recovery. I now find that the price is tackling one of its inner guides within its broader channel and as the shorter-term momentum slows the price may recognise its restrictions and may become volatile in the $26-30 range as momentum is rebuilt. A combination of more significant support is located in the $22-23 area but a drop to test this range is not indicated at this time.

The peak area around $31 will provide a major obstacle within the upward path and then in the $34-35 zone as the price marks out a new trajectory.

BHP Billiton (BHP) $35.82

Checking Back

A strong upward path from the 1970s has remained unthreatened during recent international and domestic events. When the BHP share price peaked at $50 in 2008 it had experienced a momentum overrun and the subsequent reaction saw the price drop significantly but still maintain its trend. Recovering strongly through 2009 and through into 2011 the price again tackled the $50 mark, but the combination of peak resistance and diverging momentum kept the peak intact.

Sliding back to locate inner trend support around $30 the price has formed a very similar phase to what occurred in the mid-1990s. Following the same style of movement would suggest that the price consolidates its position in the $34-39 area with the possibility that it may check back a bit lower before breaking up through $40 to resume the upswing by retackling the $50 peak and moving significantly beyond. A drop beneath $30 would place this scenario at risk.

Brambles (BXB) $8.62

A Pause Due?

From the early 1990s the Brambles share price has ridden some large waves, rising from lows around $2.75 in 1995 to a first peak close to $13.00 in 2000 to fall sharply into a spike low at $3.75 in 2003. Reversing quickly the price rose steeply to forge a new peak at $14.85 in 2007, topping out and falling into another rapid decline and spike low around $4.00 in 2009.

Since then the price movements have become less volatile with the price forming a broad reversal which has only recently been completed allowing the price to continue the 2012 uptrend. In reaching towards $9.00 the stock has encountered a major barrier zone and is likely to pause and consolidate underneath ahead of forcing a break through.

Support during any pullback is located in the $8.00-8.25 area and then more importantly for a pattern return in the $7.00-7.50 region. Once this phase is completed a break up through $9.00 would signal the next advance towards $11.00 and then $15.00. A drop beneath $7.00 could seriously delay the next advance.

Commonwealth Bank (CBA) $70.13

Tight Upward Path

A powerful upward trend has been in place since the early 1990s and has been maintained by two significant consolidation phases. The most recent of these was completed late last year with the rise towards and through $60 to reach past the $62 peak into a momentum overrun as the price approached $70. The daily momentum is running extremely high and the price may need to pause in much the same vein as mid last year when the upswing halted with the price pulling back towards support.

In this case support is located between $60 and $63 with back-up at $57-58. The pause may only be brief ahead of the price breaking higher through $72 and then potentially through $80. The risk would be a drop beneath $57 triggering a deeper pullback within the trend.

CSL $60.27

Pausing in Trend

CSL’s share price performance from the early 1990s can only be termed extraordinary. The first upward wave took the price from 75c to $17 in eight years where in 2002 it topped out and fell into rapid decline reaching $3.86 in 2003. The next upward wave ran the price up to $43 in five years gaining more than ten times its price. Halting in 2008 at $43.17 in momentum exhaustion the price rolled over into decline but in this case only fell half as much percentage wise as it had done in 2002-3. The price continued the rolling pause, oscillating between $26 and $38 from 2009 through until mid-2012.

In momentum recovery the price broke away from the phase in April last year propelling the price along a similar trajectory as those experienced from 1994 and 2003. While this suggests that the price has significant longer-term upward potential, in the short term, momentum has begun to diverge indicating that a pause may be due. In this case, the price may still stretch higher but the upside maybe restricted around $65 with support located in the $53-55 area, then lower around $50 and then more critically in the $38-43 region.

Macquarie Group (MQG) $39.49

Price Uncertainty

The volatile price performance exhibited by Macquarie from 2000 has formed into a diamond pattern. This type of pattern reflects uncertainty, and while notable at major turning points, the diamond can at times continue the current trend.

In the later stages of 2011 the price found support at the lower parameters of the phase around $20 and the price has been progressively moving higher since then launching itself on a steeper path in July last year. The trend has approached a significant barrier zone within the phase located in the $41-42 area and as momentum slows the price may find it difficult to forge a break through at this time.

Support is located at $36.60-80 and then between $33 and $34 and more critically around $30. As the phase continues its development a break away through resistance around $45 would be required to confirm the next major advance.

National Australia Bank (NAB) $31.64

Testing its Barriers

From early 2000, and incorporating the 2008-09 downturn, the price for NAB has been in a broad consolidation of its long-term upward path. The last three years of the phase have seen the price track sideways with the breakaway through $27-28 in February completing an important stage within the phase.

In the $30-32 area the price is testing a significant barrier to the upside and the near-term momentum has slowed suggesting that more preparatory work maybe required of the share price before a breakthrough can be staged. When the breakthrough occurs the stock would be on its way higher towards $35-37 and then $40 and potentially towards and beyond the peak.

Support during any pullback is around $27-28 and then lower and more critically at $22-23.

Newcrest Mining (NCM) $21.95

Close to Support

After peaking around $43 in 2010, the Newcrest price topped out and broke down through the 1998 uptrend in June 2011, continuing to slide into 2012 until it located support in the $20-21 area mid-year. Bouncing strongly the price hit resistance at $30 a few months later and was deflected back to support. The drop to $21.53 on 10 January this year, and then again to $21.27 on 21 February, has the potential to form a double bottom and become part of a much larger base for higher prices. As the price rallies, it faces a short-term barrier in the $25-26 area with an upward break signalling the completion of the first stage in the reversal process. It would suggest the ability for the stock to rise towards $30 with the potential towards $40-42 and possibly significantly beyond.

The risk to this scenario would be a drop below $21 indicating an extension of the reversal process with a decline into the lower support range extending down towards $18.50 to seek a more secure turning point.

Origin Energy (ORG) $12.66

Rebuilding Momentum

Following an extraordinary rise between 2000 and 2008 where Origin gained almost twenty times its price, it halted moving in a sideways band for around three years before sliding lower through 2011 and 2012. Finding a momentum turning point at $9.84 on 16 November last year the price recovered strongly to reach $12.77on 6 February for a gain of nearly 30% in two and half months. Suffering from the combination of the steepness of the climb and a momentum overrun the price has checked back and may continue the pause action as momentum is rebuilt.

The tight near-term parameters of the phase lie between $11.80 and $12.70 but volatility may increase to include wider price swings between $10.30 and $13.00. A rise up through $13.00 would indicate the potential for the price to head towards the next major barrier to an upward advance in the $15-16 zone. The risk level is $9.80.

QBE Insurance (QBE) $13.69

A Turning Phase

The QBE share price has been travelling within a broad upward channel from the late 1980s, which has allowed significant volatility and some damaging downward trends. The longest of these downward trends was initiated in 2007 and continues to exert its influence over the stock, but recent events on the chart tend to suggest a change in direction.

When the price fell to $10.02 in December last year, it failed to make a new low with momentum supporting a turnaround. As the phase progresses the price may churn in the $13.50-$14.30 range with outside parameters at $11.20 and $14.70. These levels may be used as guides within the downward trend with a rise above $16.50 required to finally confirm a change in direction for the stock. Once cleared the stock would gain the potential to head towards $20-22 and possibly much higher. A drop below $11.20 would be a warning signal that the turning phase was under threat.

Rio Tinto (RIO) $63.10

More Volatility

When the Rio share price topped out at $124 in May 2008 it had experienced an extraordinary momentum overrun and in reaction it fell into a period of extreme volatility not unlike that experienced during the 1970s but more heightened. During this phase the stock wiped a massive 80% from its share price before launching itself into recovery in 2009-10. The recovery slowed during 2010 with the price declining into 2011 and 2012.

Finding support around $48 in mid last year, the momentum began to swing back into the positive indicating a reversal and potential for a new upswing. In reaching $72 in February the price encountered the combination of the downtrend from the peak and divergent momentum triggering a pullback. This action is still influencing the price and may see more volatility in the $61.00-64.50 area which may broaden to include parameters at $58 and $74.

Beyond this, the price has higher barriers around $80 and then in the $90-95 area as it continues its upward trend. The risk would be a drop back beneath $58 delaying the upswing with the need to check lower support.

Santos (STO) $13.54

A Repeat Performance?

Within its long-term upward path the share price for Santos has consolidated in three major phases. The first developed in the late 1980s and the second in the later stages of the 1990s and the third and current phase commenced in 2007. Judging by the length of time the two previous phases have taken the 2007 consolidation may not be too far from completion.

As the phase continues its development the price is facing a barrier zone in the $14-15 region. With momentum stretching, a sustainable breakthrough may not be possible at this time and the price may need to pause ahead of such an action. In this case, support would be located at $12.75 and then lower in the $11.50-$12.00 area with more critical support at the bottom of the phase around $10, although a drop towards this level is not indicated at this time.

A break up through $15 would trigger the next upward leg for the stock towards $17 and then $20 and potentially into the $25-30 zone.

Suncorp Group (SUN) $11.76

Swinging in Trend

The Suncorp share price has been moving in a wide ranging and volatile upward path from the late 1980s. Within that trend the upward momentum accelerated during the later stages of the 1990s taking the price into the upper segment of the channel to peak in 2007. The subsequent dramatic sell-off returned the price to the bottom of the channel losing almost 80%.

From the lows experienced in 2009 the price reversed quickly then slowed into a sideways expansion of the reversal through into 2012.

When the share price began to move up strongly in June last year the momentum behind the move resembled that experienced in the mid-1990s before the acceleration of the trend. Since the 2012 trend was initiated the price has gained over 60% and has begun to run interference from its tight parameters and the momentum on the shorter-term charts has begun to slow. This indicates that the price may need to pause before it heads towards the $14-16 barrier zone. If the action continues to resemble that experienced in the mid-1990s then it may only be brief before the upswing resumes.

Support is located around $10.60 and then closer to $9.90. It would need a drop below $8.90 to seriously negate the prospect of higher prices. Once the $16 barrier is overcome the price would gain the potential to head towards the peak and significantly beyond.

Telstra Corporation (TLS) $4.53

A Trend Change

After suffering a long downward trend from 2000, within which the price made several sideways attempts to change direction, Telstra managed a key low and reversal point at $2.55 in 2010. From here the price launched itself on a strong upward path, overcoming several important barriers to finally break free of the final influences of the downward draft in January this year.

Considering that the price has already moved up over 80% since its low the trend has lost momentum and may need to move along a lesser gradient as it heads towards higher resistance at $4.85 and $5.35. Support within the current trend is at $4.40 and as the gradient changes at $4.30 and then around $4.10. Back up support lies at $3.70. Once the consolidation of the trend is complete and the price breaks above $5.35 then higher targets would be confirmed towards $6.50-60 and towards $8.00. A drop below $3.70 would place this scenario at risk.

Wesfarmers (WES) $42.85

Accelerating Trend

After following a steep upward path from 1991 the Wesfarmers share price entered a period of extreme volatility in 2005, incorporating the 2007 peak at $42.54 and the 2008 trough at $14.24. The downturn into 2008 and subsequent recovery has exhibited some of the characteristics of the 1990s sell-off and reversal, suggesting that while the current upswing may slow that it should maintain its trend higher.

As the price tackles the peak area, it may need to pause and consolidate its position with support around $38.80 and then at $37.25 along the short-term uptrend. In the event that this trend is broken the more critical supportive zone lies between $32 and $35.

When the upswing resumes and is confirmed by a clear breakaway through $43.50 targets would be instigated towards $47 and potentially into the $50-60 range.

Westfield Group (WDC) $11.24

Power Regained

From a low point at 30c in 1990 the Westfield share price powered higher to reach $14.60 by September 2001, but momentum had been diverging for some time and the trend was finally broken in mid-2002. While the subsequent downturn took 35% from the peak, the price did not fall significantly in terms of its previous gain and after locating support and consolidating, resumed its upward path albeit at a lesser gradient. Quite often when a trend path becomes too steep to maintain over a long period the price corrects to a path on a lower slope.

In reaching $18.26 in February 2007, momentum diverted more dramatically triggering a bear phase which saw the price drop to $6.77 by March 2009. At this point the combination of support and a major momentum swing bolstered a reversal and strong recovery during 2009 followed by a sideways consolidation and another pullback into 2011. The entire action from late 2008 formed an extended base and was completed in 2012 with the price rise through $9.70 continuing the strong upward draft commenced at the October 2011 low point.

As the trend progresses, the price has encountered a resistance zone around $11.20-40 which may produce a pause in the trend, before it continues higher with objectives towards $12.75 and $16 and possibly significantly beyond. Support during any pullback would be between $10.20 and $10.80. A drop below $10.20 would suggest a deeper downturn towards support closer to $9.00 but such an event is not signalled at this time.

Westpac Group (WBC) $31.25

Tackling Peak Resistance

At current levels the Westpac share price is testing peak resistance, and while the underlying momentum and trend path remain strong and support a break through and higher prices, the near-term momentum is stretching and the breakaway maybe delayed by the need to pause and pullback.

The price has been powering along an upward trend from the 1970s. The trend has been empowered by three significant consolidation phases. The most of recent of these which commenced at the 2007 peak strongly resembles the action from the late 1980s and early 1990s. At that time it took a few months for the price to overcome its peak price and continue the upward path. If the similarities between the phases continue the price may pullback towards support located between $27 and $29 and possibly lower towards $25.

Beyond the peak the potential gained from the phase suggest the price has targets towards $35 and then towards $50. In the event that the price drops beneath $24.50 then longer-term trend support would be located closer to $20, but such an action is not indicated at this time.

Woodside (WPL) $37.39

Encouraging Signals

When the Woodside price reached $69.92 in 2008 it became the pinnacle in a large diamond formation. Diamonds are a hybrid pattern which reflect uncertainty and can either reverse or extend the current trend. The pattern continues to exert its influence over the price and indicates that there remain uncertain times ahead for the stock.

As we moved into 2013 some encouraging aspects began to appear, including the longer-term momentum swinging to the positive and the price surge in February, following the completion of an accumulation phase. At $39.21 in February the price achieved an initial objective from the phase and has pulled back to support around $36 and there may be more churning in this range as momentum rebuilds.

In light of these more encouraging aspects and with the backing of the momentum built during the accumulation stage, it suggests that a break up through $39 can be supported for a test of the more significant barrier zone in the $41-42 area. This area aligns with the top of the broader diamond phase and indicates the potential to complete the pattern for the upside signalling higher prices with a next objective into the $50-55 area and potentially much higher.

The danger to this scenario would be a failure to overcome the $41-42 area and a drop back through lower support at $30 and a breakdown of the pattern at $26.

Woolworths (WOW) $35.71

Shuffling the Trend

Between 1993 and 2011 the Woolworths share price rose along a well-defined upward path, with three pauses to consolidate as the trend progressed. The most recent of these became more extended and while maintaining the support within the phase, as the price had done on the previous occasions, in this instance the extended time forced a sideways breakthrough of the trend.

With resurgence in momentum the price broke upside from the phase in July last year, pausing in September, then to reboot from the beginning of this year. The action has brought the price to within close proximity to some critical resistance, combined from the peak and the underside of the broken trend in the $35-37 area. The combination will provide a formidable barrier and as the shorter-term momentum becomes stretched the longer-term outlook remains strong. This suggests that the price may need to pause and consolidate its position between $31 and $36 before another stage higher can begin and relies heavily on whether the upward trend can be regained or a trend at a lower gradient can be established. A drop below $30 would indicate that a lower trend path may be sought closer to $26.


Technical Notes

Technical analysis terminology is very descriptive, helping with its interpretation.  A barrier refers to an area of previous price action (where noticeable buying and selling has occurred) above the current price and suggests that as the price approaches the area that previous buyers may be prepared to sell out, providing resistance to the upward move.  Support plays a similar role for a downward move, representing an area where previously buyers believed that the price was good value and may be prepared to buy again, halting or stalling the downward move.

Some of the patterns referred to on the charts include diamonds, sideways, reversal and basing formations.  A diamond is a hybrid pattern and during its formation reflects uncertainty in the share price and in many cases it is difficult to gauge its outcome until the pattern is finalised.  These patterns are generally of major significance and should be viewed with deference.  In a sideways phase the price appears to be trapped between two levels.  The upper level forms a barrier and the lower level provides the support (as detailed above) and the price continues to oscillate between these two levels until either the buyers or sellers become the stronger. A reversal provides an important directional change for the stock and in the case of a change to the upside is usually part of a broader basing phase, an area of buying accumulation.


Regina Meani is a freelance consultant in market analysis and the founder of Your Technical Analyst. *This report reproduced courtesy of stockbroker BBY.