Upside for Woodside

This post formed the basis of an article which then appeared in the Australian Financial Review on 17 August 2016. Michael Gable is a regular expert contributor to the AFR. You can access the AFR version HERE.

Woodside Petroleum is one of those companies whose results on Friday will be closely watched. The energy sector has endured a horrid 24 months, yet a rally in oil prices since the February lows has not been enough to see a sustained recovery. Back in March we looked at Santos and suggested a low is probably now in place for these stocks. Despite Santos trading more than 20 per cent higher since then, Woodside’s performance has been more subdued. On one hand you have analysts believing that Woodside’s growth phase is behind them, on the other there is a feeling that those expectations are too low. This is why Friday’s result could see some interesting movements in Woodside. If expectations are too low, then Woodside is poised to make some fantastic moves.

WPL 16 August 2016

We can conclude this by looking at the chart of Woodside and analysing how it is trading. On a long term monthly candlestick chart (not shown), I have seen some good support for Woodside here, along with a buy signal about to be triggered on our indicators. However, looking at Woodside’s price action for this year only, we can make a couple of interesting observations. The first thing to look at on this chart is the timing of the share price movements up and down. The rally from the low in April saw the stock move from $24 to $28.50 in the space of 4 weeks. If the bears were in control of Woodside, then they should be able to sell it back down to $24 quite quickly. That seems logical because if all the effort required to move Woodside $4.50 can be negated in half that time, then it is clear that there is a lot of selling pressure in the market. However, the opposite is now occurring. Notice how since we found that peak at $28.50, almost 4 months has passed. That is, with almost 4 months of trying, the sellers can only make the share price drop about a dollar, not the $4.50 required to send it back to the yearly low. Woodside is therefore still well above that April low. In technical analysis, this is what we mean by looking at the timing of a move, and it can be very revealing. In this case it means that Woodside is well supported and there is a lack of selling. The other point to note is that the stock is now trying to push past a key level of resistance (indicated by the diagonal line). This suggests that it is poised to break higher. A positive result on Friday could see it spike up. A shot at $30 is not out of the question. However, with the price of oil likely to be range bound between about $40 and $60, and it is now near the lower end of that, the share price of Woodside may have limited downside if Friday’s report fails to excite.


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