CBA Share Price Gets Extremely Overbought at its All-Time High

CBA Bank

Global banks are at a crossroads as interest rates lead to higher interest income but fears of a slowdown bring the risk of more delinquencies. Australian banks have done well, helped by the hawkish view of the Reserve Bank of Australia (RBA) and the view that China will have a comeback. CBA (ASX: CBA) share price is now sitting at its all-time high having risen by 26 per cent from its lowest level in 2022.

Safe but expensive banking group

Commonwealth Bank, which has the biggest market share in Australia, has done well even as the economy faces significant headwinds. House prices in key cities like Sydney and Melbourne are plunging while Australia’s households are among the most indebted in the developed world.

The company’s strong performance is mostly because of its strong market share in Australia and the fact that it has a solid balance sheet. Its most recent results showed that it has a CET ratio of about 11.5, which is in line with other global banks. But Australian banks are more regulated, meaning that this ratio translates to above 17 in other countries.

Despite all this, CBA seems like an expensive bank considering that it has a price-to-earnings (PE) multiple of 20. In contrast, most banks like TD, Goldman Sachs, and Citigroup are trading at a multiple of less than 10. This valuation is likely because Commonwealth Bank tends to be a safer banking organization and has a strong market share in its core market of Australia.

CBA share price forecast

The CBA stock price has invalidated an important pattern that has been forming since November 28. As it rose, the shares managed to move above the important resistance at A$109.23, the highest point on November 25 and January 20. By moving above that level, the stock invalidated the double-top pattern whose neckline was at A$100.30.

Meanwhile, the shares are being supported by the 25-day and 50-day moving averages. Oscillators, on the other hand, paint a picture of a stock that is severely overbought. The Stochastic Oscillator has moved to a high of 98, the highest level since November 25. Similarly, the Relative Strength Index (RSI) and the Commodity Channel Index (CCI) have moved to their overbought levels.

Being in an overbought point is not always an indication that a reversal is imminent. In some cases, it can be a sign that a stock has a bullish momentum. And in this case, the invalidation of the double-top pattern seems to have more weight than the oscillators. Therefore, in the near term, the shares may continue rising a buyers target the important psychological level at $115. On the flip side, the stop-loss of this trade will be at $103.

CBA share price chart
CBA Bank share price chart