Momentum Monday 03 April

I like to often have a cup of tea (or seven) and look over markets from a longer term perspective as it allows me to remain sane and sound when the world (and our portfolios) are seemingly crashing down around us. Which is a great lead into a new quarter and this week’s edition of Momentum Monday.

Before I continue I just want to confirm have you received your fortnightly email from us highlighting some of the main interesting articles of the week? Its a nice summary relative to the wide ranging information you can get trying to navigate the platform. If you didn’t receive it, perhaps check your junk folder just in case. Unfortunately email systems can be a little heavy handed with the way they treat messages so be sure to include us on your “safe sender” list

Also it was great news last week with Stockopedia winning the award for Best Private Client Research Provider at the 2023 UK Good Money Guide Awards, in recognition of the unique insights we deliver and our dedication to member's success. Well done Team!

The agenda for today’s report is:

• Broader market sentiment

• Stocks of Interest

• 52 week high screen

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JUST A REMINDER: I do not use the market charts to make decisions as to when to buy or sell. I will always use a stock’s individual chart to do that. However, I do look at the market charts to get a sense as to how aggressive/cautious I can be when trading/investing individual stocks.

Broader market sentiment

S&P500

OK before I continue, this is a timely reminder why I have trained myself to block out a lot of the stuff that I built my career on and saw us number #1 fund manager in the country a number of times. As retails investors we have a distinct advantage over those guys, in particular with the ability we have to control fund flow given our smaller investment amounts with the exception of likes of Twiggy Forrest if he was a client- (I am not breaching any privacy rules by saying no he is not, just in case you were wondering.)

The US Market had a strong week and it was its third positive week in a row rising over 3%.

Further for the quarter, the S&P500 rose 7.03%, which is what one has come to expect these days in a period where the second and third largest ever bank failures in US history occurred.

S&P500 Weekly chart

Many of us were cheering on Saturday morning (Friday night US time) as a strong end to the week bodes well for the week coming. But looking at our chart, we still need to be on alert. The 18 week tight range we spoke of between 3837 and 4146 (since November 2022) still remains.

I am not going to predict anything, but with the S&P500 closing at 4109.3, it doesn’t take a rocket scientist or a particularly experienced chartist to know that it only has to go up 0.9% to get to the top side of this tight range. For the bull case, a breakout will provide further confidence to traders given a new higher lower has been set and that the previous lower high has been surpassed.

However, for the bear case, a failure to break that resistance would see us back in the channel with likely downside support to be retested.

Whilst the RSI and MACD have also turned positive which is a good sign, I caution investors that in instances where there is a period of consolidation on the price, these longer term trend measures are less effective as moves out of tight ranges can be quite aggressive (to the down or up side)

S&P500 since November 2022 weekly chart.

I appreciate that it feels good to see this but we need to (as always) temper our enthusiasm and not trade based on hope of a continued improvement (though just to be clear, ‘hope’ is not a trading strategy). Last week I pointed to the daily chart on the S&P500 and pointed to its bearish feel.

The good week did change this a little as the index rose above the 2.5x ATR and the index level is now above both 50 and 200 MAs. However we still haven’t created a new short term higher high (remember - we are in a trend until we are not).

The overall narrative for the global market is that we can still invest, but we are sitting on a knife's edge, so now is not the time to be loose with your stops. At least this time it looks as if the clouds are starting to dissipate and here is hoping for continued recovery in 2023. Should I be so cheeky as to wish more bank failures.... sorry... I am just being silly.

S&P/ASX200

Blessed relief!

Finally after 7 negative weeks, we got a positive one. And though each down week brought us closer to an up week, I must admit, even my patience was tested with the break below 7038.

Talk of the RBA potentially slowing the pace of rate hikes on accounts of a slowing (though still very high) inflation rate was enough to rekindle some much needed market optimism.

Economically things aren’t that super as things have definitely slowed down and we have seen another home builder in Porter Davis go broke. Fixed contracts and rising costs is a killer and an example of inflation’s insidious impact. Though as I have mentioned many times in this contribution the question is not ”how can we get more affordable housing?”. Rather it is, “How the hell are we going to build more homes?” - but again I digress.

As we have been mentioning for a few weeks now, we remain in a sideways channel and for as long as the index remains above 6474 we can still buy stocks. Though we have been tracking sideways (with a slight downward bias for some time now) so any stock you do buy is unlikely to receive any favours from the market at this point. Rather it will be company driven events that move things.

I will finish by saying that even though what happened last week coincided with the optimistic picture shared last Monday, one swallow doesn’t make a summer, so keep your stops in place and be wary of false signals in this sideways market. Let’s “hope” though that this one week bounce continues.

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Any requests?

If there is any company you would like to see written about you are most welcome to include it in the comments section below and we will attend to it in the coming weeks.

Stocks of interest

Tip: if you look at the list on the right hand side you will see the stocks mentioned within this week's contribution.

Author note: In line with the approach I am using with Stockopedia, I will focus the majority of my attention to stocks with a QM rating above 80 and market cap above $500M. For those who may be new to this report please read the last instalment of my momentum journey here. I will discuss where their charts presently sit to provide context for potential and current investors. You can revisit the series of articles starting with Episode One here.

These stocks are considered purely for the purposes of education - THIS IS NOT A TIP SHEET. Be sure to read all relevant commentary to understand the context from which a chart is presented. It’s not always positive!

ASX:Cochlear QM Rank 99 A$236.69

There are not many stocks I cheer for when they do well, but I don’t hold them. But Cochlear (ASX:COH) is one. Not only because of the great technology life changing technology that they have, but also because I remember my initial positive coverage on the stock in my early days as an analyst sub $30 (at least you can figure out in roundabout terms how old I am)

ASX:COH 1 year Daily chart

I had been waiting for a re-entry into this business and I have it now. You will see the point that the price crossed back above $225.04 and for close to a month. The price consolidated around there. What I was looking for was a push up that we saw at the start of March, then I waited for the pullback and as you can see the price held short-term support. This was enough for me to purchase and now the stock is at an interesting juncture.

It has reached a level of resistance last seen in November 2020, October 2021 and April 2022. A break above this and it will fast approach $250.45 which is all time level. The range around here was last tested pre-COVID lock downs, then again in June 2021.

ASX:COH 5 year Weekly chart

With the 50 day moving average now above the 200 and the price being in the right place in relation to them, there is little in the way to cloud a blue sky. The recent forming of higher lows supporting the run up, means I have taken the plunge.

From the level I bought it my parachute stop will be $198.46. Traders who take the plunge need to calculate their own as the next structural level of support is $188.87 and for some that may not be an acceptable drawdown.

ASX:SHL Sonic Healthcare QM Rank 97 A$34.84

Sticking with the same sector and a stock that had a very tough 2022, however seems to be finding some life again is Sonic Healthcare (ASX:SHL)

ASX:SHL 1 year Daily chart

Since hitting a 52 week low in the middle of February at $28.30, the price has found some support. It is above the 2.5x ATR and is above the 50 day moving average which coincidentally has crossed above the 200 day average.

Further the price is now above the recent lower high of $33.50 which means we have a new higher high set. I would expect a pullback to occur at some point for SHL and provided it stays above $32.89 that would be a good possible entry with a stop at $28.30. For those feeling aggressive and wanting to buy now, then a stop at $31.78 would be appropriate as the risk is the gap formed in Mid Feb could be filled if that level is breached.

On the positive side though, if the price can break resistance and get above the series of low highs that we have seen, then the next target becomes all time highs of $46.63.

ASX:SHL 2 year Weekly chart

ASX:NAN Nanosonics. QM Rank 97 A$5.09

We last covered Nanosonics (ASX:NAN) in January and at the time we focused on the false break in the middle of the month.

Fast forward to today and the stock has proven incredibly resilient, particularly in the face of the Feb-Mar sell down. $5.13 remains the resistance level set from the previous lower high almost twelve months ago, every pullback has been milder and milder.

This is quite the positive looking chart, supported by a spike in volume from when the company delivered its half year report.

While there is still a bit of work to do to get it back to $8.00, a break above $5.13 would confirm the veracity of the pullback since 2021 will start to ease.

ASX:TLS Telstra. QM Rank 93 A$4.22

Readers of this section will know on my preference toward stocks trading at 52 week highs (that is why I have dedicated a whole section to the concept down below), and while it a while since 52 week high and Telstra (ASX:TLS) have been uttered in the same breath, here we are.

ASX:TLS 1 year Daily chart

The stock is rapidly approaching the previous 2021 high of $4.26 which should it breach and consolidate that level, then there are targets upwards to $5.38 where the price hasn’t been since 2016.

Traders may wish to be patient and wait for the cross above $4.26 to confirm an entry or get in now. After much internal pain, including a 5 year turn around strategy the company looks primed for some positivity, should it hold $3.77.

The good thing about TLS is that it is a slow moving beast providing clear entry and exit points with less likelihood of whipsaw action snapping your neck.

ASX:SDF Steadfast QM Rank 92 A$5.85

In my latest addition to the “if you can’t beat them, join them” strategy we will take a look at insurance broker Steadfast (ASX:SDF).

ASX:SDF 1 year Daily chart

Brokers take a clip of the ticket. So when insurance prices go up, so does the clip. It's why it held up so well between Feb-Mar

At this point the stock is close to all time highs, and while I hope the price tanks (as it would mean insurance rates are coming down) - I don’t think that is likely.

A break above $5,85 would be very positive, with a stop loss at $5.46.

NZE:MFT Mainfreight QM Rank 92 NZ$70.10

Recently Chris wrote about NZ based global logistics firm Mainfreight (NZE:MFT). You can read his commentary here

Its price hasn’t reflected its Fundamental qualities with the price falling for over two years. But on the positive side, it still holds support.

NZE:MFT 1 year Daily chart

Since October last year the price has entered a sideways channel and either a break above NZ$76.00-$76.40 will be positive, whereas a break below NZ$64.50-$65.50 would be a negative. If the chart goes with the positive angle then there may be a portionof investors who will start to appreciate the fundamentals a little better.

ASX:SMR Stanmore Resources QM Rank 93 A$3.43

Metallurgical coal miner Stanmore Resources (ASX:SMR) has done a good job benefiting from high coal prices despite unseasonably wet weather.

ASX:SMR 1 year Daily chart

They were able to increase production on account of the acquisition of 100% of SMC during the year. What has been pleasing is that the extraordinary high level of cash generation (despite new Queensland royalties) has seen it make a massive dent into the debt on hand and the company looks to quickly erode that balance so that they can start paying dividends again.

Unlike CRN, this production increase in SMR has meant the price has been incredibly resilient when so many (met and thermal) coal stocks had been sold off. When we last discussed this stock in early January (previous drawings included for reference) we said as much and now with 100% ownership of BMC (now known as SMC) the price continues to be strong.

It has been in a steady uptrend for the year, though since a peak of $3.86, the price retraced to $3.09 though it was still a new higher low. On that note the stock looks to be preparing for another run at all time highs. A stop at $3.09 would be a structural point for a stop loss.

ASX:PLS Pilbara Minerals QM Rank 94 A$3.94

Covered in the same edition was Pilbara Minerals (ASX:PLS) where it was mentioned

"It is looking increasingly clear that the boom times may be easing for Lithium (though the demand for lithium will remain - it is fair to say the easy money has been made). Therefore investors should be cautious now in assuming that prices will only keep going up and for those that have only just entered the sector - tread wearily."

ASX:PLS 1 year Daily chart

With PLS specifically the price was identified as commencing a downtrend and fell to a low of $3.43. Since then the price has rebounded but it continues to set lower lows. The reprieve that came from the thrice revised Albermale offer for Liontown will have to be watched as there is a risk it may be eroded as the company remains in the broader down trend.

Those of us who have held it for a very long time will be looking forward to the coming dividends as we saw following the recent half year. But more recent investors should take note of where the price is currently sitting.

ASX: IFL Insignia Financial QM Rank 80 A$2.74

Financials stocks have experienced a torrid time of late. One which has been in a sideways channel for the past year, and in a down trend for longer is Insignia Financial (ASX:IFL), the former IOOF.

ASX:IFL 1 year Daily chart

Stuck between $2.65 and $3.72, the finservices stock has seen a number of EPS downgrades on account of a normalisation of earnings following a COVID induced hit and subsequent rebound.

The price is coming up to support so for those that wish to try to trade the channel 'You won't have to wait long to know if you are wrong.' However this is a high stakes play given neither of the individual ranking scores of Quality and Momentum are particularly strong (it's just combined that they score just enough) and it is closer to 52 week lows than highs.

In an instance like this I would prefer to see a clear shape and direction in the price. For those game to give it a go, please make sure a stop loss is in place.

ASX:EBO EBOS Group. QM Rank 89 A$43.56

Pharmacy veterinary and medical distribution business EBOS (ASX:EBO) has experienced a strong six months on the back of acquisition news and its recent inclusion into the S&P/ASX300.

ASX:EBO 1 year Daily chart

The stock is trading at all time highs on account of enthusiasm not just for its recent report, but also

All this despite EPS which can be attributed to the new capital raising used to fund the LifeHealthcare acquisition which it acquired in May 2022 and is already a solid contributor to the business.

With such charts, rather than buying at the apex, it can be prudent to wait for a mild pullback to consider a position then rather than avoid the risk of a double top forming (a reversal pattern). However on Friday it broke above the highs of January and early March. So if it consolidate this position it is blue skies ahead.

Do not it has had aggressive false break outs in the recent past so be careful if buying on good news.

EBO trades on the NZX as well.

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52 Week High screen

Academic Research has shown that stocks close to their 52 week highs tend to outperform.

To that end I have attached the results of a screen run within Stockopedia showing every stock above 200 million market that is trading at least 5% from its 52 week high. (If you wish to recreate this criteria in the scanner select "Price vs 52 high" greater than -5%)

This has not considered liquidity of the stock nor does it consider its fundamental qualities. However we have included each factor score to help you.

Data is at 31 March and is sorted by the stocks closest to their 52 week high.

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Information in this commentary is current as at date prepared unless otherwise stated. However, please bear in mind that investments can go up or down in value, and that past performance is not a reliable indicator of future performance. For more Important Information please refer to the Disclaimer section of this website.

This communication may contain general financial product advice. It has been prepared without taking into account your personal circumstances, and you should therefore consider its appropriateness in light of your objectives, financial circumstances and needs before acting on it.

If our advice relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure Statement (PDS) before making any decision.

The author holds interests in the following stocks mentioned in this article: COH,PLS, TLS . This position can and will change at any time without notice.