Day four: our potential CBA trade

Technically CBA looks fairly strong, having seen a good rejection of the A$76 level yesterday and closing not far off the high.

If we look at the MACD on the daily chart it has pulled above the signal line, which is certainly interesting. What’s more, since the start of 2013, if you had bought CBA whenever the MACD crossed the signal line, below the zero line it ended up in a win/loss ratio of 3.9 times – provided you closed the trade when the MACD crossed below the signal line. This is something to bear in mind and could suggest we see higher levels from here.

The fact the stock goes ex-dividend next week should keep traders happy to support this name in the coming days as they buy for the income the dividend provides, so I would certainly not be shorting this name right now.

Fundamentally, yesterday’s result was strong and of a good quality, but does it blow the lights out? Probably not. However, it’s very much a ‘steady as she goes’ from CBA from here. We need to be consistent that looking purely at valuation alone has meant many have lost out on buying CBA for a number of years, as it has been deemed ‘expensive’ for some time. However, CBA seems to be really lacking a catalyst for moving the stock materially higher from here and it seems to me that if we are going to see the stock push up to test the all-time high of A$79.88, we are probably going to see PE expansion, rather than earnings driving the gains. This will no doubt be driven by an improvement in sentiment towards China and the S&P 500 printing a new high.

If you look at the consensus twelve month price targets from analysts, CBA is now trading on a 0.3% premium to this consensus (I’ve only looked at the nine who have revised their targets post earnings). If you look at the range of the nine analysts who have updated their models, Bell Potter is the most bullish with a target of A$82.50 T S Lim is Bloomberg’s most accurate analyst on the stock of late, while Goldman Sachs feels the stock is worth A$66.27 in the next twelve months.

So in conclusion, shorting this name is tough given the upcoming dividend payment, while it is never advisable to short a stock that is in an uptrend. However, fundamentally I can’t get excited by this name at all and thus with disagreement between the fundamentals and technicals I feel there are better opportunities out there right now.

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