After a nice rally to the channel resistance on the chart below, Qantas shares are again losing altitude and drifting back to the support line.
Qantas’s cost improvement process centred on a different approach to competition and capacity is likely to deliver improvements to the bottom line for some time to come and seems likely to keep its stock in favour.
However, this trend line support is getting elderly and starting to look like the type of situation that could set up for a minor false break. Of interest in that regard is the 50 day moving average which is tracking just below the trend line and might provide a zone of support just as everyone is stressing about the trend line breaking.
Below that, the previous lows around $3.20 provide a last line of defence which seem unlikely to be broken unless there is a major downgrade to Qantas’s outlook or a significant market sell-off.
One trading approach to a situation where you believe there is likely value in a stock but a number of technical supports is to use a “scaled” entry strategy. This splits the buy allocation into 2 or 3 parcels. The key from a risk management point of view is that this should always be planned averaging rather than unplaned double up to catch up approach. Under a planned averaging strategy, the trader will have no more than their intended maximum exposure to the stock if price does get down to the lowest support level, not 3 times what they originally intended.