Is Westpac Still In The Buy Zone?

Is Westpac Still In The Buy Zone?

After dropping as low as $29.55 in early June, the Westpac Banking Corp (ASX: WBC) share price has gone on an impressive run and reached as high as $32.74 last week.

By comparison, the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has been flat during the same period.

Is it too late to buy Westpac shares?

Whilst it is no longer the bargain buy it was in June, I still believe Westpac?s shares are reasonable value right now.

Global market sentiment: Risk sentiment improved, and US economic data was strong, helping boost the USD and equities.

Interest rates: US 10yr treasury yields ranged sideways between 2.13% and 2.15%, while 2yr yields nudged a little higher from 1.32% to 1.34%. Fed fund futures yields continued to price the chance of a December rate hike at around 37%.

Currencies: The US dollar index is up 0.7% on the day, having risen even before the strong ADP and GDP data. EUR fell from 1.1985 to 1.1883. USD/JPY extended gains from 109.65 to 110.44. AUD fell from 0.7996 to 0.7890. NZD fell from 0.7278 to 0.7189 – a two-month low. AUD/NZD consolidated after the strong construction data response, between 1.0960 and 1.1017 (a five-month high).

Economic Wrap

US GDP rose 3.0% annualised in Q2 (vs 2.7% expected, and 2.6% previous) in its second estimate.

Revisions to GDP contributions were healthy: personal spending added 2.3ppts to growth, up from an advance estimate of +1.9ppts; and business investment was revised up to show a slightly firmer 0.85ppt contribution (up from 0.64ppts). Otherwise housing investment, net exports and inventories werfe mostly unchanged.  On the negative side, government was revised down to -0.1ppt (s the advance read at +0.1ppt). Overall, the report indicates stronger momentum to the private sector economy. ADP private sector employment rose 237k in August (vs 185k expected), posing upside risks to tomorrow’s broader non-farm payrolls report.

German CPI rose 1.8% yoy in August (as expected, but above 1.7% in July). Eurozone CPI data tomorrow may well surprise higher.

Technical Analysis

westpac

Overall, the bias in prices is: Downwards.

Short term: Prices are stalling.

Intermediate term: Prices are ranging.

The projected upper bound is: 32.44.

The projected lower bound is: 30.15.

The projected closing price is: 31.29.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 23 white candles and 26 black candles for a net of 3 black candles.

Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 16.8168. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 8 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 41.31. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 59 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -106.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 5 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 4 period(s) ago.

Rex Takasugi – TD Profile

WESTPAC FPO closed up 0.110 at 31.270. Volume was 19% below average (neutral) and Bollinger Bands were 27% narrower than normal.

Open    High      Low        Close     Volume
31.360  31.540   31.205   31.270   5,814,535

Technical Outlook
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish

Moving Averages: 10-period    50-period    200-period
Close:                       31.91            31.59             32.45
Volatility:                16                 23                   21
Volume:                   5,816,075   6,003,084   6,135,627

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

WESTPAC FPO is currently 3.6% below its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of WBC.AX at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on WBC.AX and have had this outlook for the last 3 periods.

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Ivy Heffernan

Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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