Weekly game plan 5 April 2020 - CLSSecond fake break above that resistance level? Back to the support?
CLS trade ideas
JSE:CLS Clicks Stop RunAfter finding support at the yearly pivot point I thought we had seen the spring and the markup is to follow. However, we have had a stop loss run where large interests were hunting stop losses to generate more liquidity and accumulate more shares. A break back above the 200 Day SMA and yearly pivot point could be the start of the markup. Clicks is stronger than the Top 40 and negative divergence on the Volume RSI also indicate and an increase is due.
JSE:CLS Clicks Backup CompleteWe have had to wait but the backup to the trading range seems complete (See previous posts). After an accumulation range and breakout, we have now had a smaller reaccumulation range with a backup to the larger accumulation range. A spring-like action with volume seems to indicate Clicks is ready for the markup to start. With the volume entering, we are expecting the price to commit above the breakout level of the backup.
Can Clicks still run higher?After setting a new all time high last week, we got a pull back with the share hitting lows just below R210 in yesterday's trading session.
That price action has resulted in a technical chart pattern that looks like a bull flag; which could break-out today should we get a close higher than current levels.
JSE:CLS Clicks Still Waiting for the Backup ActionAfter breaking the reaccumulation trading range (TR) with signs of strength (SoS) we now see a smaller trading range forming which should lead to some backing up action before the markup in phase E starts. After the breakout and SoS we have had localised buying climax (BC), automatic reaction (AR) and now a secondary test (ST) of the BC completing phase A of the sampler TR that is forming. There is no demand (low volume) and I am expecting the price to stay in the TR until a spring forms which completes the backing up (BU) action to test the breakout level of the larger reaccumulation TR. For now, some patience is required for the TR to complete before going long and following the markup.
Top5 oversold/overbought according to RSI & ClicksPlatinum mines still dominating the top 5 overbought list. C has also clearly become the new A+ on the JSE, with two of the greatest success/growth stories, namely Capitec and Clicks, still powering ahead. Cartrack has now joined the “Lekkerrrrrr by die C” party.
Oversold:
Prosus 28
Cashbuild 31
Accelerate Property 34
BATS 34
Emira Property 34
Overbought:
Northam Platinum 81
Amplats 78
Clicks 78
Capitec Bank 78
Cartrack 75
This week I want to spend some time on Clicks. Clicks released a trading statement this week (7 October 2019) stating that their diluted headline earnings per share (HEPS) for the year ending 31 August 2019 will be up between 15% - 18%. This is not only up from their previously stated 10% -15% growth, but also well ahead of consensus expectations of 13%. This saw Clicks share price run more than 14% since the announcement was made; to NEW ALL TIME HIGHS!
Naturally the short term technicals indicate a heavily overbought share price according to its 14-day RSI. We also saw a HUGE outperformance against the FTSE/JSE All Share. To put the current valuations in perspective:
Clicks are trading at close to 3 times the average historic PE valuations of Foschini, Mr Price, Truworths and Woolworths and 50% higher than Dis-Chem.
Forward EV/EBITDA is 22 compared to Foschini, Mr Price, Truworths and Woolworths of 8 and Dis-Chem’s 13.
When we look at the weekly chart, we can clearly see the extend of Clicks’s performance. Should the bullish run continue, short-term target should be around R268.
I am however worried about the current valuations. Should we see a pullback, we could see the share price seek support at the 50-day moving average at R196. This coincide with the current consensus target price (Thomson Reuters) of R203 on the company. A break and close below R196 will have me monitoring the bottom of the long-term support trend (at R191), which if I was a short-term trader, would also act as my stop-loss.
In short – great quality company, with solid reasons for the great performances. Remember, there haven’t been lots of success stories on the JSE lately, with investors clearly pushing towards these very few companies (artificial support). I am however worried about current valuations and got a personal target price on the share price of R215.
JSE:CLS Clicks Large Potential UpsideUsing the Wyckoff Point and Figure methodology to predict potential targets of our previous analysis (see link below) there seems to be large upside potential. Using a 200 box size and 3 box reversal which is equivalent to a weekly chart we have a count of 38 bars. Therefore the potential is for a 38 x 200 x 3 = 22800 point rise. Taking it from the low 15721 we get a target of 38521. Using the countline 18893 we get a target of 41693. This leaves us with significant upside potential. After a retest of the breakout level, we could establish a good longterm campaign.
CLS - CrossroadsWe may derive the following from the Daily CLS chart:
1. Price tested the double top area once and may test it again before a move down. However, it could break to the upside.
2. We will need to wait and see what price does - either giving us a long continuation trade or short initiation.
3. Monitor price action and be patient.
4. As always - maintain your risk.
Note: The views provided herein do not constitute financial advice.
Clicks Trade IdeaThe price action for the shares of beauty and pharma retailer Clicks has, in my view, been uninspiring. Despite trading near all time highs, it appears that there are pretty aggressive seller capping gains around the 217 to 218 level. That is to be understood considering the fundamental valuation which sees the share command a 33 price-to-earnings ratio, which is significantly elevated and, doesn't leave any room for negative surprises. Based on the price action and technical factors while being supported by fundamental factors, traders could look to short/sell the share. Please see the trading levels below:
Trading Plan:
Sell/Short CLS at 21600 or higher
Use a stop-loss of 22100c to protect capital
Take profit at or near 20650c
