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Retail risk and reward

Traders jumping around on 5-minute charts rarely step back and take a look at the big picture. But they should. Knowing where a stock is relative to its history can be very important. Shareholders wrestling with their Wesfarmers (WES) exposures may wish to take the weekly chart (above) into account when deciding.

It’s especially relevant to those contemplating whether the Coles earnings machine and the Bunnings growth engine are running as hot as they can. If this is as good as it gets for these businesses, the WES share price could come under pressure, despite a recently improved coal outlook.

A P/E ratio around 19x and a dividend yield around 4% are “ok” if growth around 8-10% is achievable. Growth below that range would imply WES is expensive. Now look at the chart. $45.50 is a clear, long-term resistance level. At $44.00 WES is still more than 3% below that level. However, it’s more than 30% above key support at $30, and more than 65% above its post GFC lows. It’s not hard to make a case that selling WES is less risky than holding on.

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