Super Retail Group Limited (ASX: SUL) is one of the top ten retailers on ASX. The company mainly deals in auto, sport and outdoor leisure products in Australia and New Zealand and retails many iconic brands like Macpac, Rebel and Supercheap Auto, Boating Camping Fishing (BCF) etc.
On 24 October and 25 October 2018, we have seen a massive sell-off in the stock amid company’s Chairman’s Address to Shareholders, Managing Director’s report to AGM, Trading Update and results of the AGM 2018 (all of them being announced on the same day). The stock plunged more than 20% in just two trading sessions from A$9.35 to A$7.48. This fall didn’t stop there, and a gradual and consistent selling took the stock even lower to A$6.83 within a few days. After getting oversold, a minor bounce from the bottom level was seen, taking the prices back above A$7.5. Again this rally was intensely sold off on high volumes which broke the previous swing low of A$6.83 and took the stock to 6-years’ low at A$6.35.
Considering the start of the decline where the price was trading around A$9.35, the stock got cheaper by almost one third, here the first stage of qualitative buying started coming in. After making the low of A$6.35 around 14th January 2019, the stock rallied in one direction for almost a month to A$7.9. On 12th February 2019, the company announced the 1HFY19 results which made the stock highly volatile on that day (making a high of A$8.54 and low of A$7.72 in the same trading session).
From here the stock faced resistance, and another decline followed, taking the stock back to A$7.15. But this decline was on a very light volume indicating that it was not led by mass participation. The fall in price with the fall in volume degraded the strength of the trend. On 3rd March 2019, the stock again formed a bottom (with the volume of more than 2.5 times of 20 days average volume) and soon followed back to the same levels from where the previous decline took place (ignoring the highly volatile day on account of result announcement). This rally was accompanied by higher than average volume as well.
On the daily chart, this entire price action seemed to have translated into a 4-month long Inverse Head and Shoulders’ price pattern. Inverse Head and Shoulders is a price pattern that forms at the bottom and generally marks the reversal of the ongoing downtrend. In this pattern, the stock continues with the downtrend (which forms after a massive plunge), and after making a low, a minor rally is seen (which marks the left shoulder). This rally gets sold off so heavily that the stock makes a new low with almost equivalent rally back up (which completes the head). Again a minor decline takes place with light volume and price back up to the previous level (which completes the right shoulder). There is also a component of “Neckline” which is the resistance level from where the selling is regularly taking place. Upon the breach of this neckline, the Inverse Head and Shoulders pattern gets completed, and a trend reversal gets highly probable.
Currently, the stock is hovering around its resistance level of A$7.9 – A$8; and upon the decisive closing above this level, the trend might move in positive zone. As at 15 March 2019, the stock traded at A$7.81.
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