Trading Woolworths: Breaking Down The Current Price Action + Probabilities

Research Notes For 16 to 20 June > https://www.unum.capital/post/r1620june

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Overall Trading Considerations for Woolworths (WHL)

The current price action for Woolworths (WHL) is characterized by significant weakness across all evaluated timeframes. The model indicates a bearish sentiment, though it points to specific conditions that could signal a potential reversal or an attractive long-term entry point.

Price Action Analysis:

• 7-Day Trend: Oversold This indicates that the price has moved sharply lower in the short term and may be due for a pause or a minor bounce.

• 14-Day Trend: Very Bearish This confirms the broader negative momentum over the last two weeks, suggesting that the recent selling pressure is significant and sustained.

Comparison: The "Oversold" 7-day condition exists within a "Very Bearish" 14-day trend. This suggests that while a short-term bounce is possible due to the oversold state, the prevailing trend is strongly negative. Any immediate upward movement should be viewed with caution as it could be a temporary reaction rather than a reversal of the dominant bearish trend.

Potential Trading Approach:

Short Term (Approximately Next 1 to 10 Trading Days): The model notes, "Aggressive Selling Recently But Long Risk Reward May Be Attractive."

• Approach: The recent price action has been dominated by aggressive selling. However, for traders willing to take a contrarian view (going against the trend), the potential reward for a long position (a bet on the price rising) might be attractive compared to the risk, precisely because the stock is so beaten down. This suggests a high-risk, potentially high-reward scenario for a bounce.

Medium Term (Approximately Next 2 to 4 Weeks): The model indicates, "Has Been Sold Aggressively-Look For A Continued Dip Before Minor Rebound."

• Approach: The outlook for the medium term remains negative. The expectation is that the price will likely continue to fall further before staging a minor rebound. This suggests that patience is required, and traders might anticipate lower prices in the coming weeks.

Long Term (Approximately Next 5 to 8 Weeks): The model states the trend is, "Persistently Weak But Monitor If Price Can Reclaim Prior Session Lows For A Bullish Reversal Trade."

• Approach: The long-term trend is weak. However, the model provides a specific technical signal to watch for: a potential bullish reversal. If the price can move above the low points of previous trading sessions, it could be an early indicator that the bearish momentum is fading and a more sustained recovery could begin.

Summary of Trading Considerations:

• Prevailing Bearish Momentum: The dominant trend for WHL is negative across short, medium, and long-term perspectives.

• Short-Term Contrarian Opportunity: The "Oversold" condition combined with an attractive risk-reward profile may tempt traders to look for a short-term bounce, though this is a high-risk strategy against the primary trend.

• Anticipated Further Weakness: The medium-term outlook suggests that lower prices are likely before any meaningful rebound occurs.

• Conditional Bullish Reversal: The long-term view remains weak but offers a clear signal to monitor. A reclaim of prior session lows would be the first sign of a potential bottoming process and a possible entry for a bullish reversal trade.

In summary, the trading model for Woolworths (WHL) points to a stock under significant selling pressure. The recommended approach is one of caution, either waiting for prices to dip further in the medium term or watching for a specific bullish reversal signal in the longer term before committing to a long position.

Lester Davids

Senior Investment Analyst: Unum Capital