Most CSL shareholders love their company and it’s not hard to understand why.  What’s not to love about a 47% rally in the stock price since December? However, the chart has arrived at a critical point, suggesting some shareholders have a wandering eye for a bit of value elsewhere and are flirting with the idea that some time apart might be best for everyone.

CSL chart

On Monday, CSL fell to test established trend line support around $135. The late May peak also provides horizontal support around the same level

Two features of the CSL chart suggest that a clear break of this support might be important.

The first is that the trend line is at a relatively moderate 45 degree slope. Trends can maintain this kind of momentum for extended periods but when they do eventually break, a significant correction often follows.

The second is that the whole advance from $91.62 to $145 looks to have completed an Elliot 5 wave structure. I’ve labelled this on the chart.  Although, I haven’t labelled them, each of the preceding swings higher (1 and 3) themselves consist of 5 minor swings higher.

There is often a significant correction after a 5 swing advance, e.g. at least to the 38.2% Fibonacci retracement level which in this case is around $124.75.

How likely is this?

You’d be brave to predict that this support will definitely break. CSL is a great company with very good growth prospects. The recent acquisition of the Chinese plasma fractionator Ruide, only adds to this growth potential. The lesson of recent months is that investors are prepared to pay for CSL’s growth outlook and have been quick to take advantage of minor pull backs

If this time is going to be different, it may be about the market attitude towards high value, momentum stocks in general. At around 28.4 times forward earnings, CSL is still well above the average of 23.9 that applied for the 4 years 2013-2016 according to Bloomberg data.

High value US tech stocks have been momentum leaders for much of this year, but now have wobbly looking charts. It’s not beyond the realms of possibility that CSL could get caught up in a temporary rotation out of the high value, momentum sector. Concerns about rising interest rates, for example, could be a catalyst for this.

At this stage this looks like a watching brief to me.