Momentum Monday 04 December

Sorry for the delay,  technical Issue. 

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Welcome to Momentum Monday.

The air seems to have lightened all around us and as we head to the festive summer season with a bit more positive perspectives. Funny though - we still haven’t moved much. But sentiment has taught me over the many years

We also spend a moment to reflect on a life well lived with the passing of Charlie Munger who of course passed away last week. While his obituary has been long and detailed, as it should be, the passing of such an influential person in one’s personal and professional development also creates a moment of reflection. Vale Charlie.

Interesting links

• Weekend Watchlist with Shares for Beginners Listen here This week it is NAN - Nanosonics

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This week’s content is as follows:

• Broader market sentiment

• Member corner

• Stocks in the “Shine Zone” (including changes)

• Buses pulling out of the station (volume + price movers)

• 52 week high screen (including changes)

A reminder that you don’t have to read all this contribution. Simply scroll to the area of interest.

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Broader Market Sentiment

We look at the direction of both the US and ASX markets to gain an understanding of the broader sentiment at the minute. It is important to stress here that I DO NOT use this to time my entry or exit out of stocks. I prefer to use the individual charts of stocks to do that. However I find it useful in helping us determine how aggressive/cautious traders should be in their trading. In short the more positive the broader market is the more risks you can take and vice versa.

US / S&P500

The US saw the month of November return the best monthly return since January. Helped of course by five consecutive up weeks.

S&P500 Weekly chart

As discussed over the last few weeks, we remain on target for the all-time high level of 4766. In fact looking closely at Friday’s close sees the index 9 points above the previous short term high high and also at the highest level in 2023. In fact it is also the THIRD HIGHEST CLOSE SINCE THE ALL TIME HIGH WAS REACHED ON LATE DECEMBER 2021 .

The new short term higher high means short term support has risen now 4117. For as long as the index remains above that level we are more optimistic than pessimistic.

While the Federal Reserve tried to convince the market this week that interest rate cuts are not on the table just yet, the market grew increasingly convinced that rate rises are on pause for the immediate future, with the next move being downwards as recent inflation data, supported by a falling oil price, adds weight to the argument for a cut. The 10 year Treasury Bond rate has fallen over the past few months from the 5% precipice to now be at 4.2% so bets are growing for the next move to be downwards.

Though as Chairman Powell mentioned. He sees current rates as “sufficiently restrictive” - which is code for “we don’t need to do anything.”

OPEC+’s decision to extend current production limits rather than introduce further cuts to current production were a further sigh of a relief with West Texas Crude falling to US%74.50 per barrel (at the time of writing)

Personally though, I would prefer the market take a breath. As I say, the more consecutive weeks we see, the closer we are to an opposite move. To use a breathing analogy…. Say when the market goes up you are breathing in…. If you break your regular breathing rhythm and take a long deep breath in. This results in a stronger and more prolonged breath out. In fact if you hold your breath for too long you can actually do more harm than good, and what was a calm breathing process turns into a desperate gasp for air!

In summary, we remain in equities globally, as macro concerns of a few months ago seem to be forgotten as if they were a dream.

AUS S&P/ASX200

It is on that positive note that we look at the S&P/ASX200 and we sigh… Well at least it was an up week (+0.5%) and at least it closed just above the top of the support range.

S&P/ASX200 Weekly chart

We too saw a surprise print on the CPI figures in October coming in at 4.9% - when most expected to see a 5 at the front. This cements the market’s view that the RBA board will keep the cash rate on hold at 4.35 per cent at its final meeting of the year on December 5, effectively meaning we won’t be changing rates till at least February.

But despite the good news, it wasn’t enough to spur the market into action. I ‘hope’ some positivity dust from the US falls onto the shoulders of our market come Monday Morning.

Last week I spoke of the frustration investors (including myself) are feeling,and that acting limp may be the best thing. I am running out of things to mention in a market that has gone sideways for 2.5 years - so let’s turn December into a game. December 2022 closed at 7038.7… therefore I will be cheering for the index to stay above that level. Currently it is 7073 so all we have to do is keep our head in front. Otherwise I am also happy to take jokes from the audience - just write them in the comments section if you’ve got one… and keep it clean!

But in all seriousness, are there any positives? You bet there are (I mean it!).

• The number of stocks at 52 week highs rose strongly this week

• The number of stocks in the Shine Zone continue to increase

• The number of stocks pulling out of the station has also increased

  • But more importantly of the stocks that left the station a significant amount where due to a price recovery over the 3 month term which means they pulled out of the station. Alternatively many saw volume drops which suggests at the very least the pace of their recent sell off has eased.

If you are wondering what I means by all these please refer to the data tables at the end of this publication. But all in all the improving lists are a positive sign for the market.

In sum, hopefully the index can stay above the support range and definitely above 6827 maintain the faith..

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Member corner

In this section we will provide a detailed chart assessment, on a maximum of ten stocks weekly, on companies from those of you in the Gallery.

We welcome stock requests to be analysed from members. We will also be looking at the charts of some of the more actively researched stocks for the week. We will try to rotate through a selection so as to not make the charts stale, however we will likely not cover a stock within 2 months of when it was last discussed.

If you want to see what has been written about a stock recently, go to the discussion area.

We will not be making up suggestions. If there are no changes to the most viewed list and/or there are no suggestions from members, then no stocks will be covered.

To learn of the methods used to analyse companies in this section, refer to my Momentum Journey series that I articulate here in three parts.

Episode 1

Episode 2

Episode 3

They will help provide context on what I am writing about and the editorial angle of this report.

And again, if you have a stock you would like analysed from a momentum perspective, please write it into the comments section below or email us at support@stockopedia.com.au

ASX: TNE - Technology One

• StockRank 71

• Momentum Rank 87

• QM Rank 97

• VM Rank 47

• A$15.25

A stock which has appeared on the most viewed this week has been TechnologyOne (ASX:TNE)

ASX:TNE 1 year Daily chart

When last discussed from a Momentum perspective back in June . At the time I said that support was at $14.50. The level was subsequently not just tested once, but twice (in August and October) This now increases the importance of that level.

Traders will also note the resistance from the all-time high in May and November. In summary it is fair to suggest the stock is going sideways (as can also be seen by the convergence of the 50 day and 200 day moving averages - though at least they are in the right order for a bullish move.)

The stock is below the 2.5x ATR and has been choppy around this level which is expected given the sideways move.

Given the channel appears quite significant, I feel a break (either way) out of it is needed to give a clear sense of direction. Support remains at $14.50 if you hold it. If you don’t then a break above resistance at $17.01 - $17.12 is needed to provide the possibility of breaking out. Even then, a subsequent recoil following the breakout may be prudent.

ASX: RFG - Retail Food Group

• StockRank 73

• Momentum Rank 78

• QM Rank 60

• VM Rank 93

• A$0.062

A member requested we look at Retail Food (ASX:RFG) RFG  pre-empting that from a momentum perspective the stock would fail.

ASX:RFG 1 year Daily chart

But as with all things Momentum - it is about perspective. I am not going to go into the fundamentals as they are terrible. Its history likewise off putting with a sordid tale of burnt franchisees and legal battles. The company is effectively broke.

Which therefore came as a surprise when announced that they had acquired Beefy Pies, though upon further reading we saw that it was Soul Patts who dipped the money in back in April and now with a new line of credit, to which funds from that will be used as part of the acquisition cost. Without that support I doubt even afterpay would have helped!

I found it interesting that the “Beefy” family accepted $2M in shares immediately putting them in the top 10 shareholders, along with the likes of Regal Partners and two firms I do respect in Soul Patts (that I hold) and Thorney Investment Group. Not that the deal was interesting as it is quite common, but more to the point that RFG’s past doesn’t instil confidence in its long term trajectory. Whether this is a good decision or not we will wait to see. You are correct that it is a very franchisable model, though they don’t want to end up with “Pie Face” where a company of the same name had a good early offering but got greedy and grew too quickly, to ultimately fail. Mind you - so too did many of the names RFG brought into the stable before they overexposed them.

But this is Momentum Monday, and now I will block all that out and focus on the charts. I will look at them from a short term and long term perspective.

Short term (1 year) The set up actually looks quite good. While the price has been down for the year to date, you will notice in May when support was last tested and failed, that the level finds itself there again. That resistance level has not only been tested once, or twice, even thrice…. In fact this is the fifth attempt. What was most pleasing about the fourth go was that the price retraced and created a short term higher low. If the price could spring above $0.064 then it may be off to the races.

Long term (10 year) and it looks like how a mushy pea pie tastes like (sorry…. I am not a fan)

BUT you will note in the chart below, the long basing pattern that has occurred since 2020 (3 years) from a charting perspective when prices fall from $7.50 to $0.02 the market thinks it is going to fail. But over the past three years it has scratched and clamoured for breath and has survived. Though I notice the price is still below the high volume day in November 2020 when Soul Patts first became a substantial holder.

ASX:RFG 10 year Monthly chart

The good news is that such basing patterns over such a long time provide some confidence that the laundry has been washed, aired and in some cases rinse and repeated one again. This gives the view we have set a new base and the only way is up from here (assuming the company survives).

So to that end with Soul Patts bankrolling the business in the near term, perhaps a base has been found and given the short term chart shows signs of a turnaround, a price just crossing the 200d MA then perhaps a trade above 6.4 cents may be worth a chomp (but have tight stops in place!)

ASX: NCK - Nick Scali

• StockRank 99

• Momentum Rank 97

• QM Rank 99

• VM Rank 98

• A$10.88

Another stock that appeared in the most viewed list this week was Nick Scali (ASX:NCK) possibly following the announcement that Anthony Scali was set to reduce his holding in the firm by some 5%

ASX:NCK 1 year Daily chart

After the initial shock, the price has somewhat stabilised now and investors may be wondering where to go from here. NCK is a high quality stock that has been discussed a number of times. From a momentum perspective we last discussed NCK back in May I said “last chance saloon would be $9.20.” Subsequently the price fell to a low of $8.10, but in fact rebounded…. Quite strongly actually, all the way back to the previous lower high though it failed to break it.

This level is now resistance ($12.42 - $12.61) and I would prefer a clean break above it for the stock to have any chance of reaching the previous all time high of $16. I still have $9.20 as my stop loss level.

ASX: LOV - Lovisa

• StockRank 53

• Momentum Rank 43

• QM Rank 73

• VM Rank 24

• A$19.32

Another stock looked at by members this week was Lovisa Holdings (ASX:LOV) . The high quality global fashion jewellery retailer hasn’t had the best run at 2023 as it consolidates its expansion plans amid what had been a rising rate environment globally.

ASX:LOV 1 year Daily chart

I last discussed LOV in March. I said the price needed to hold $22.50 and I wouldn’t look at it until it crossed above $26.20. Well it didn’t cross above $26.60 and it broke below $22.50.

Now at $19.31 I wouldn’t look at it unless it crossed above the previous lower (which coincidentally is now $22.50 - another case of where the previous support level becomes resistance.)

The price needs to hold the lower low level of $17.22. But with a series of lower highs and lower lows, plus the 50 day average being below the 200 day moving average the stock is currently in a downtrend and will continue to be…. Until it's not of course.

ASX: KKO - Kinetiko Energy

• StockRank 22

• Momentum Rank 43

• QM Rank 34

• VM Rank 18

• A$0.085

A new protagonist entered our most viewed this week in Kinetiko Energy (ASX:KKO) . Rather unusual given its size and the fact it rarely trades. If any one did review it please let me know in the comments section as I would be interested to learn.

ASX:RFG 10 year Monthly chart

ASX:KKO 1 year Daily chart

As previously cautioned, I don’t tend to rely on charts as much for illiquid stocks as even minor buying or selling pressure can create a big spike or fall. Just like KKO experienced when it announced the ‘non-binding’ JV with a South African government department to establish its coal seam gas operations in the north-west of the country.

Since then the excitement has died down, and whilst still positive news, it is no guarantee of success. There as been no other development announced, and despite the positive news the price remains in the doldrums. This is a common affliction I am afraid with junior explorers. BRK - Brookside Energy, the US junior is another that comes to mind that despite positive announcements sees the price languish.

Back to the charts. The price needs to hold 8 cents. That level has been tested a few times recently, including twice after the 70% pop in August. In a further worrying sign the gap created by the pop has been filled and price has not rebounded after filling the gap.

Either way this is going to be fundamental driven on news of South Africa’s grand plan for gas in the country rather than charts in my view. If there is hope is that the price has shown the price can move quickly if the news is good enough. A bit of luck and KKO could run strongly.

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Stocks in the Shine Zone

To learn about the Shine Zone and how to use it, you can read it here.

The rules for inclusion in this list are based on those I like to see in a stock before considering a trade in it:

• QM Rank above 80

• Price is above the 2.5x ATR

• 50d MA is above the 200d MA

• Price is greater than the 200d MA

• Market cap greater than $200M

This is a very important point: the “Shine Zone” are rules for possible buying. They are not for holding and/or selling. If a stock falls out of the shine zone, use support levels to set your stops, or instigate a parachute stop if necessary. With markets moving sideways, one expects frequent changes in these lists.

If you feel there is a stock that should be included but is missing please let us know. This is a manual process and occasionally one gets through the cracks

Data is at 2 December and is sorted by the stock code.

Changes from last week

Shine Zone list as at 2 December

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“Bus pulling out of the station”

To learn more about this screen read the following article on the objective of the screen

Here is a shortcut in understanding the reasons why a stock is removed:

• Volume drop = Bus might be moving, but no one is on it

• Price 1 mth < 0% = Bus has been cancelled

• Price 3mths >= 3% = Bus has pulled out of the station

Data is at 2 December and is sorted by the stock code.

Changes from last week

“Pulling out of the station” on 02 December

52 week high screen

In this section we identify stocks within 5% of their 52 week intraday high based on the idea, supported by academic studies, that stocks close to their 52 week highs tend to outperform. Weekly changes to the list will also be noted.

If you wish to recreate this screen in the screener select "Price vs 52 high" greater than -5% and Mkt Cap greater than $200M

A stock coming onto the list is NOT an automatic buy, just as a stock that leaves the list is NOT an automatic sell. As with the shine list, assess every chart on its merits. However movements on this list may alert you to interesting charts so be sure to look at Stockopedia and the chart first.

Data is at 02 December and is sorted by the stocks closest to their 52 week intraday high.

And remember, past performance is no guarantee of future performance.

Changes from last week

Stocks within 5% of their 52 week high as at December 02, 2023

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