Tag: ASX:CBA

Shares of the major banks dropped sharply at yesterday’s open as  budget-related fears triggered intra-day volatility rates not seen in the banking names for over 2 years.

Prices rebounded throughout the trading session in what we consider technical , value-related buying, which substantially pared the early losses.

The strong reversal in share prices triggered the ALGO engine to give buy signals in ANZ, CBA, WBC .

Given the murky outlook for earnings growth, and increased bad-loan provisions across the banking sector, we only expect the recent price action to form a 50% retracement of the recent losses, at best.

Commonwealth Bank

The soft underlying revenue trends which impacted the other major bank
results over the last week were obvious in CBA’s Q3 result. Offsetting the weak revenue trends in the major banks has been a strong performance on asset quality.

We see downside risks building around regulatory change & economic weakness leading to higher bad debts.

CBA FY18 forecasts net profit to remain flat at $9.8b, EPS $5.50, placing the stock on a  forward yield of 4.9%.

The Algo Engine has triggered a buy signal on the higher low formation in ANZ. We’re happy to look at this from a  very short term perspective but remain on the short side of the banks and we’re inclined to sell any technical bounce from the current levels.

NOTE: The Australian Government announced the introduction of the Bank levy in its 2017 budget. Based on the Treasury estimates this levy will raise $6.2billion which will reduce earnings by up to 5% for the majors’.

Australian banks are currently trading at lofty levels and close to significant chart resistance points.

We consider CBA to be most vulnerable to a down side correction considering the technical pattern and the premium at which it trades to its peers.

Going back to December 2015, there have been four occasions when CBA shares traded into the $85.00  to $86.00 price range before rolling over for a 5 to 10% correction. At this point, we are looking for a technical move back to the $80.00 level.

Fundamentally, huge consumer debt burdens, stagnant domestic wages growth and an overheated housing market will likely act as a headwind to further meaningful price appreciation.

Investors holding long CBA positions can look to sell covered calls into June, or buy the May $83.00 outright put option.

Shares of Commonwealth Bank (CBA) have been trading below the 30-day moving average of $83.80 for the last four consecutive trading sessions.

As the technical picture continues to deteriorate, we have looked at some previous chart resistance levels which could now act as price support.

Between late January and early February, CBA tested the $81.10 level three times over the course of 10 trading sessions; this will be the first key support level.

However, going back to May of last year, CBA shares failed to break above $80.00 five times before extending higher in July. We feel that this is a more significant support level and a reasonable medium-term target.

Investors and subscribers will remember that we sold European-style call options on CBA in late January. By selling the $83.01 strike-price into March, we were able to collect $2.50 in option premium and still hold the shares to collect the $2.00 dividend paid in February.

Those options will expire this Thursday.

As such, we will look to reset the derivative overlay strategy in CBA on corrective price moves higher.

Shares of Commonwealth bank have opened 2% higher to $84.50 after reporting a record first-half profit of $4.9 billion.

The result was 6% higher than the previous record reported in the first half of last year. An interim fully franked dividend of $1.99 was declared, which was 1 cent higher than expected.

Upside price momentum could be tempered as the bank announced net interest margin was lowered to 2.11% from 2.15% and their wealth management division saw a net profit drop of 34% compared to the same period last year.