A look at Truworths international Ltd

Throw in a healthy dose of strong competition from other brands, the lack of clarity around Brexit and local regulation and it seems likely that you would be inclined to investigate opportunities elsewhere. However it is not all doom and gloom as the share offers the most attractive value and dividend yield in its sector with a PE of 13.5 and dividend of 5.07%. Bearing in mind the exposure of other companies in the sector to similar regulatory challenges it may be fair to say that the biggest long term risk is that through Brexit, given this Office should still help deliver stronger earnings through cash sales in the interim.

Technical Analysis:

Technically the chart of the Truworths share price is a technicians educational dream with a number of talking points, starting from the left in July of 2016:

The Death Cross of the 50 day moving average below the 200 day moving average is considered a bearish signal in that we can see a decline in the short-term momentum of an instrument or stock with the expectation of future dclines to come. During this time it was interesting to note the increase in volume during the initial selloff, followed by a gradual decline in trading volumes as the share price rose to challenge resistance at the 200 day moving average, remaining in overbought territory before dropping back into neutral in line with the declining share price.

The inverse head and shoulders pattern, a sign of a potential bullish reversal appeared after a steady decline in the share price of over 45% from the high in May in 2016 of 11250c to a low in November of the same year of 6121c. A break of the neckline at 7400c on higher volume in December verified the trend reversal.

The most recent price action represents a bullish consolidation in the share price, with a bullish breakout move above the 50MA and 200MA, with a Golden Cross evident in the aforementioned; denoting a bullish trend signal and an increase in the short-term momentum. The lower volume is in line with the current consolidation which has an upside bias where we can see a long real bodied candle, supporting the breakout above 8500c. Whilst the share price is overbought it can remain this way for some time in an upward trend.

The Trade:

An interim dividend of 270c for the share is expected on the 8^th of March and the expected adjustment in share price could be an opportunity for buyers to to get in at a lower price. Conversely those wanting to benefit from receiving the dividend have until the close of the market on the 7^th to trade into a position. A close above the confluence of the short term horizontal and diagonal resistance at 8990c would signal a breakout of the current consolidation targeting an initial upside move to 9500c. A close below 8600c would be considered a failure for the current setup, with further downside expected.