Momentum Monday 17th April 2023

The end of the shortened week was fairly uneventful, despite news the economic landscape is not changing for some time. More on that in a moment.

For those that may be reading this contribution for the first time, do note that within this contribution we discuss all things Momentum. This includes price moves as well as big macro themes from the perspective of how they may impact sentiment.

You don’t have to read all of it. We have broken up this report into three distinct sections so you can go to the topic you prefer.

• Broader market sentiment

• Stocks of Interest

• 52 week high screen

For those that have followed my pursuits in the past, you will likely know me as a fundamental analyst by trade. Despite my corporate and personal success applying that, I experienced an epiphany after becoming a self funded human following my departure from my previous employer. I added an element of Momentum to my strategy - more as a strategy to protect my capital. I documented this journey in a series of three articles that members can access here:

• Article 1 Please read here

• Article 2 Please read here

• Article 3 Please read here

There are many faiths in this church we call investing. We do not judge or assume anything. We are not dogmatic, nor are we too precious and proud to dismiss reality. This is the market after all, and the moment you think you have mastered it, you will be humbled.

Enjoy this regular part of your membership, on top of all the other articles that we may write. You can access them by clicking on “Discuss” in the left hand column and selecting “Aus/NZBlogs” (see below)

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Broader Market

JUST A REMINDER: I do not use the market charts to make decisions as to when to buy or sell stocks. 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.

S&P500

A positive week for the broader S&P500 and technically based on closing prices, the market closed at a very short-term higher high as the index closed at its highest level in 2023, and above the previous close at the end of January by 1 point. For the record it rose 0.79% for the week.

S&P500 Weekly chart

As mentioned last week, I would prefer to see a break above 4180 but this chart is looking much healthier as it tries to gain the muster to break out of the two year downward channel.

S&P500 since the start of 2023 Weekly chart

But the good news is the weekly RSI remains above 50 and weekly MACD remain positive, telling us that the index has the best chance it has had in a while to change direction with conviction.

From a macro sense, beyond the usual interest rate/ inflation commentary, we are about to embark on the US quarterly earnings season. Analyst expectations are low for the S&P500, with expectations that earnings will be down some 5%.

It's important to note though, analysts tend to moderate their expectations on a business so as to not ‘miss’ by too much. This tempering of forecasts is a key reason why we almost always see more beats than misses on expectations.

In a pleasing sign we had reports from JP Morgan and Wells Fargo which looked quite solid. This was always going to be interesting as they are the first banks to report since the SVB and Signature Bank failures.

With more to come next week, expect this earnings season to have a big bearing on sentiment for the remainder of April.

S&P/ASX200

The Australian Market capped off another solid week of performance with its third positive in a row.

S&P/ASX200 Weekly chart

What's more pleasing is that the index broke 7301. Another positive week and the upward range of the channel looks like the continued target, which is of course all-time highs. In fact a stat you may be interested to know is that the market only needs to rise 3.7% and we will be at new all time highs!

I would still like to see a new higher high form, possibly even a new all time high given we are so close, but signs are promising with both the RSI above 50 and MACD improving (though still negative) things are looking stable for the market.

Sentiment for the minute is solid. This despite the expectation that rates will now have to go higher following news this week that unemployment levels remain at record lows and that the recent pause in rate rises will only be temporary.

We will know more come the end of the month when the March quarterly inflation numbers are released.

Inflation hasn’t been this high since 1987, and we know what it took to rein in inflation back then, and the subsequent impact it had just a few years later.

It’s interesting to see that by the time the last “real” economic recession hit in the September Qtr of 1990, inflation had already fallen back to 5.7%. If we “had to have it” back then, today policy makers will have little option but to follow suit if the number stays stubbornly high. This is an approach New Zealand regulators are currently undertaking as discussed recently.

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Stocks of Interest

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.

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. I will discuss where their charts presently sit to provide context for potential and current investors. You can revisit the series of articles by clicking on the links at the start of this article.

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:WTC Wisetech Global. QM Rank 100 A$67.09

Let’s start with the highest ranking QM stock on the market which is Wisetech Global (ASX:WTC). We have spoken about the company in the past a number of times (for obvious reasons) but the last time was 2 months ago.

ASX:WTC 1 year Daily Chart

At the time we said a break above $63.53 would be a positive sign given the set up providing some confidence that the run could continue.

And it has.

I highlight WTC because sure, the easy money has been made and of course once you are at the very top of the pile, there is only one way to go. But as an old mentor once told me, “Think less, make more money” and that definitely rings true with WTC.

There isn't much to add other than to say if you are willing to take a position here, keep your oxygen masks handy, and have a stop loss of around $61.53 which coincides with the higher low formed in mid March.

ASX:PMV Premier Investments. QM Rank 99 A$27.01

It’s been a little longer since we last discussed Premier Investments (ASX:PMV), and the stock looks like it is at an interesting juncture right now.

ASX:PMV 1 year Daily chart

When last discussed we mentioned that a break above $25.73 and it would likely be set up for a tilt at $30. It got close but has run out of puff, no doubt on account of rising interest rate fears.

It took the price to a new lower low in March, but then it defied gravity with an excellent report (the higher interim and special dividend certainly helped) which saw the price do an about face. The important thing to note here is that the stock is yet to trade ex-div, so while the price is currently $27, 70 cents (plus a bit for franking) in effect needs to be removed.

Therefore I think traders will want to see this break into all-time highs of $28 before committing as there is a risk that we are seeing the emergence of a lower high, which is what we would need to confirm the change in the price trend.

For those who have held the stock, first well done, second I would look to have a stop at $24.07 which coincides with the low seen in December. It would mean that no one in the last four months has made money buying PMV and could lead to a flight to safety, particularly given the current Macro climate.

ASX:SUL Super Retail. QM Rank 98 A$13.32

Staying in the retail sector is another high QM ranked stock that we last discussed in January and it is Super Retail (ASX:SUL)

ASX:SUL 1 year Daily chart

At the time it was following a December note when we mentioned the stock had a solid set up.

Of course this would mean the price would subsequently fall, the price fell below the 2.5x ATR and in January we provided stop levels for investors to consider should the price keep falling. The good news is they were never breached with the price staying around $10.50 and in fact the stock has continued to rise creating new higher highs and higher lows.

For those that have missed the run a breach above $13.53 would be pleasing as not only is that level close, but it would also symbolise a new. As for a stop loss level on that entry of $12.06. $11.79 if you have held the stock for a while.

ASX:RIC Ridley Corporation QM Rank 98 A$2.17

A stock we covered in February was Ridley (ASX:RIC). At the time we throw it up as one of our “you won’t have to wait long to know if you are wrong” trades (FYI These are trades where the price  is close to structural support levels which if breached you would have to sell.)

ASX:RIC 1 yearDaily chart

The price almost instantaneously went from $1.95 to $2.34. Since then the price has made its way basically nowhere, and in fact has formed a wedge pattern with price moving in a tighter and tighter range.

When we see patterns such as this they can be either continuation or reversal patterns. What that means is, a break out of the wedge (either positive or negative) will likely be the next move in price.

I suspect this will be one for the short term traders as much of the price action will be caught in the breakout. Fingers crossed it is to the upside (which will mean this is a continuation pattern) and we can achieve a new higher high.

ASX:SIG Sigma Pharmaceuticals. QM Rank 76 A$0.705

Normally a stock that misses our initial screen criteria as the Quality/Momentum score is below 80,  Sigma Healthcare (ASX:SIG)  was covered recently by Anton Crabbe in the article that you can read here.

ASX:SIG 1 year Daily chart

From a momentum perspective this is a company super interesting to analyse.

For those unaware… The Momentum Rank is actually made up of two elements. The first is Price Momentum, and the second is Earnings momentum. In the case of price momentum, the stock ranks quite highly and is not too far from its 52 week high.

Earnings momentum on the other hand has been smashed, in particular analyst view on earnings into 2023 and 2024. It was also the main catalyst for the Momentum score falling so much after the latest report.

So there are two very opposite views as to where price is going. The chart is telling us that there is life in the stock yet after taking its medicine in recent times. And even though analysts have downgraded earnings expectations on the stock following the latest announcement, the price has been incredibly resilient in the face of that.

One of the core reasons one suspects is a reason that Anton highlighted within the article, which was the potential for the company to regain the chemist warehouse supply contract on account of related entities being major shareholders. The other has been the operational pain the company has gone through appears to be coming at an end.

Whatever the reason the chart looks promising. Expanding the view out to 5 years and the level of $0.70 has been incredibly stubborn.

ASX:SIG 5 year Weekly chart

The price broke above in September after four previous attempts to break through that level, but it failed. However the pull back created a new higher low, and should it break though $0.73 then we are at levels not seen since May 2018, and it may even see me take a nibble, notwithstanding what my esteemed peers in the industry may think.

ASX:ILU Iluka Resources QM Rank 97 A$11.68

A stock quietly going about its business is Iluka Resources (ASX:ILU). I would like to highlight it as an example of what I like to look for in charts.

ASX:ILU 1 year Daily chart

I last spoke of ILU in December. At the time the price had failed to breach the previous lower high, but it got close. Members who have consistently read these articles know that it is very rare that I buy stocks on the first break above a structural level of resistance.

Rather I prefer to wait for a retrace. Then I want to see that the pullback stay above support, and then I will look to get in.

You can see in the case of ILU that the Higher Low in January formed the catalyst to support the next leg up until it crossed $10.75. But even then I was nearly wrong. Despite the price initially rising to $11.30 the price started to pull back again, it fell below the ATR 2.5x points and got close to my stop at $9.34 which was that January point.

But again you can see the price stopped falling and has now continued to 52 week highs.

The question is, “Why wait for a pullback and subsequent run to get in? Why not just buy on the break?” The answer is because when I see a pullback, I can see structural new areas of support form. On an initial breakout it can often be hard to find these levels as the break could take the price well above any prior support level may have been. By witnessing the pullback, I know some of the hot money is gone and what’s left are believers. When the price starts to run again I know the stock is finding more fans and it gives me comfort that I now have a stop loss level closer to the current price.

This is where I am a little different than many, I don’t look at charts to calculate how much I can make, rather I look at charts to know how much I could lose. If I can control that, then I will let the natural levity of the market do the rest.

NZE:IFT Infratil QM Rank 95 NZ$9.215

Another stock which looks similar as ILU did all the way back then is Infratil (NZE:IFT)  . IFT have listings both on the ASX and NZX, however I will focus on the NZ price as the company is NZ domiciled.

NZE:IFT 1 year Daily chart

Since hitting its all time high in September, there was a daily significant pullback, but the first thing you will notice is the steady recovery since to a point where it is close to all time high levels.

What would be my strategy on this? I would wait for a break of NZ$9.545 and then wait for the pull back, if that pullback stays above NZ$8.48, and then recovers I would look at it. Given that it has done such a great job to recover to this point, some may wish to consider the same strategy now given the price is close enough to that resistance level to form a case for the prosecution.

ASX:CTD Corporate Travel Management QM Rank 89 A$21.62

Another key lesson (that I broke in stance because I have been incredibly busy is, “never turn your back on a good business”, which is what I did unfortunately with Corporate Travel Management (ASX:CTD).

ASX:CTD 1 year Daily chart

I covered last December feeling pretty smug that despite liking the business, I had exited the stock at over $20, and I was now watching the stock at $15 highlighting how members who want to use charts could have done the same.

What I turned my back on was the recovery to create the new higher in early Feb, then the subsequent pullback to create a new higher low, to finish with a recovery that saw a new higher high at $19.05 on the 3rd April. The recovery was also supported by a rising OBV (On Balance Volume) suggesting that there was gathering interest in the stock.

One week later and now the price is at $21.62 on news that they won the UK Government Home Office contract.

So I remind myself once again, never turn my back on a good business.

Now I will be waiting for a reset before getting back in.

ASX:VNT Ventia Services. QM Rank 89 A$2.67

A stock which experienced a fairly aggressive pullback from all time highs is Ventia Services (ASX:VNT) .

ASX:VNT 1 year Daily chart

Though the recovery since March has been rather impressive, supported by a rising OBV, and the price has returned to an interesting juncture. Should the price break resistance at $2.72 and then have a pullback, I will be interested.

Pleasingly the 50 day moving average is quickly catching up to the 200 day and should the pullback occur, I would look around the level of the 200 day moving average as an entry point with a stop loss at $2.21.

ASX:CUV Clinuvel Pharmaceuticals. QM Rank 87 A$20.40

We discussed Clinuvel Pharmaceuticals (ASX:CUV) two months ago. At the time we said the price needed to hold $24.50, or the price was likely to head to the $18 range. It hit $18.59 at the end of March.

ASX:CUV 1 year Daily chart

Since that low point the price has stabilised and we may be witnessing the very early stages of a recovery.

Not only did price break through short term resistance, but the price appears to have found support at the $18.50/$18.60 range.

ASX:CUV Price since March 2023 Daily chart

For those hoping to trade the possible rebound. Those levels are appropriate for a stop loss. Personally, I would prefer that the price rise above $20.60 first as the ATR 2.5x would turn positive.

Though I don’t hold them yet, I will likely buy them on Monday (assuming they are not smacked on the open.)

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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 we attach 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 14 April and is sorted by the stocks closest to their 52 week high.

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

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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.

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