Charting the big five

By Dale Gillham, Wealth Within

Commonwealth Bank, AMP, BHP Billiton, Telstra and Woolworths are among the most widely held shares in Australia, with millions of investors owning a piece of the companies. Here is a review of their share price charts.

(Editor's note: Do not read this analysis as a buy or sell recommendation on companies mentioned, rather as a chartist's interpretation of share-price patterns. Do your own analysis or speak to a financial adviser before acting on any information below).

Commonwealth Bank of Australia

Since falling to a low in January 2009, CBA has risen around 149 per cent in just 64 weeks, faster than any previous uptrend over a similar period of time. Although it is always important to allow your profits to run, it is equally important to ensure you are prepared for a change in trend. Remember that what goes up fast will generally come back at a much faster rate than the prior rise. Given this, you need to know how you will manage your downside risk when conditions change.

CBA recently broke through resistance at around $56.00 to be trading just below the all-time high price for the share of $62.16 in November 2007. This is a strong level capable of turning or at least slowing the rise, and I expect a high will occur within a few per cent of this price during the next two months. Supporting this view is the share's recent acceleration away from the current uptrend line, which normally indicates the price will soon fall to test support from the line. If you already hold CBA you might consider selling or taking some profit if it completes two consecutive weekly closes below the uptrend line, or following a trade below the level of the last trough at $51.01.

Commonwealth Bank bar chart
1991 to 2010

AMP

AMP has never traded above its opening price and is one of the worst performers in the ASX Top 20 over the past 10 years. Yet it is a good trading share that has more than doubled in price a number of times.

During the past six months, while other financial sector shares continued to rise, AMP has merely traded sideways below resistance at $7.00, causing it to also break below its uptrend line. This sideways move could just be a consolidation phase (as highlighted by the pennant pattern) before its next upward move. However, I believe this is mainly because of uncertainty around the battle with NAB in the possible takeover of AXA.

As a general rule, the share price of the company doing the taking over is likely to fall, while the price of the company being taken over will rise. Therefore, if AMP is successful it is likely to remain in the current sideways move or break downwards from the pattern. That said, if AMP breaks out of the top of the pattern, it may present a good opportunity to buy.

AMP bar chart
1998 to 2010

BHP Billiton

Since the long-term low of $20.00 in November 2008, BHP has worked its way up steadily to a significant high of $44.93 on April 6, 2010, to technically be at a very interesting stage. Historically BHP has important levels of support/resistance at around $32.00 and $40.00, and the chart below shows how it has resonated around these levels.

It is interesting to note that until January 2010, BHP enjoyed support from, and traded above, an uptrend line (dash line) anchored from November 2008. In January BHP reversed from point A on the chart and broke down through the uptrend line to find support at around $40.00, before continuing the uptrend to a new high at point B. This move to a new high enabled a new uptrend line to be drawn (solid line).

If you are holding BHP, continue to do so, but set a stop-loss to protect capital in case it falls. If you are looking to take a position in BHP it may be better to wait until the shares looks stronger technically, particularly as the next level of overhead resistance is not far away at around $48.00.

BHP Billiton bar chart
1981 to 2010

Telstra

From the all-time high of $9.20 in February 1999, Telstra traded down to a low of $2.88 11 years later in March 2010. This represents a loss in value of 69 per cent, making it similar to AMP as one of the worst Top 20 companies to buy and hold over that period. But unlike AMP, Telstra is not a trading share. Although it has paid a huge dividend, this massive erosion of capital adds little support for the buy-and-hold approach advocated by many advisers.

Marked on the monthly chart below are important price levels that have been calculated by taking specific Fibonacci and Gann percentage levels off Telstra's $9.20 high. So far the price action has respected the levels at 38.2 per cent, 50 per cent and 61.8 per cent, with these price divisions being support/resistance.

In terms of where to from here, there is no indication so far that the long-term decline is complete. For me, Telstra would need to move up convincingly from current levels to even indicate possible future support around $2.90.

Telstra bar chart
1997 to 2010

Woolworths

After the all-time high of $35.05 in December 2007, Woolworths fell away sharply as investors exited over the next seven months to create a significant low of $22.85 in July 2008 (point A on chart). Important levels of support/resistance are shown at $24.20, $26.60 and $29.20, indicating it has a natural price multiple around $2.50.

It is interesting to note that while in the grip of the global financial crisis, the significant low at point A occurred about nine months before most of the market bottomed in March 2009. Since then Woolworths has been caught up in a sideways trading band between $24.20 and $29.20, and in doing so has given investors a moderately volatile journey, with fluctuations ranging between + / - 9.5 per cent. Going forward, $29.20 is a very important resistance level. 

Woolworths bar chart
 2007 to 2010

About the author

Dale Gillham, founder and chief analyst of Wealth Within, successfully trades tens of millions of dollars on behalf of clients using his proven and audited investment strategy. His company also specialises in delivering Australia's first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment. Visit Wealth Within for more information.

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