Momentum Monday 18th September

Welcome to Momentum Monday.

A great end of the week made this week’s contribution a little easier to write, hopefully you enjoy the read.

From this week the “At the Open” wrap will commence that I do with ABC Melbourne. As mentioned last week you can listen to my daily market wraps on Apps, either directly through ABC Melbourne, or alternatively on our various social channels or podcast provider. If you want to listen but don’t have access to social media or prefer no to listen to ABC Melbourne, then follow the podcast channel here

Also note, for those of you coming along to the Australian Investors Association conference to be held at Royal Randwick Racecourse Sydney Sunday 24 to Tuesday 26, there has been a change of schedule. I will no longer be talking on Tuesday. I am now going to be doing the plenary session at the end of Monday. If you are an AIA member or intend to come along as a guest please come along to say “hello”. Both Chris and I will be in attendance. Here are details of the event https://www.investors.asn.au/events/

The week’s edition includes new content (note below):

• Broader market sentiment

• Member corner

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

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

• 52 week high screen (including changes)

We are always open to suggestions on how to make this contribution better, so if you have any, please feel free to write them in the comments below. All comments to date have been noted so thank you.

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

A small 0.16% pullback last week in the S&P500 means that not much has changed from our view of last week.

S&P500 Weekly chart

Short term support remains at 4124 and the market continues on its general upward trajectory. For those keen to be pessimistic, as the stock approaches 4766 (which remains our upside target), if it fails 4535 (which was our target back in July), then there is a risk that the index could pull-back to Circe 4180. Thought that would still be above short-term support.

Our conclusion though is we remain exposed to stocks globally.

The big macro news was the US CPI figures and it received quite a bit of media coverage as it was much anticipated, even by our local media. CPI came in at 0.6% for the month and 3.7% for the year. Excluding food and energy, core CPI increased 0.3% and 4.3% respectively. Both numbers were a little hotter than expected.

That said the market seemed nonplussed until Thursday when a hotter than expected PPI (Purchasing Price Index) number was released ( +0/7% month, 1.6% year) and retail sales increased 0.6% in August which was also higher than expected. While the US Fed is expected to keep rates on hold when it announces it rate policy decision next week, it has said there is likely at least one more rate rise to come, and this data, coupled with stronger than expected jobless data had some on Friday that the rate rise might come sooner than first thought. Or at least make them worried enough to erode the gains in what otherwise would have been a positive week.

The immediate other risk everyone is looking to, and a major input into inflation is oil prices. Currently at 10 month hughes as production cuts from OPEC finally start to bite into US Stock piles, should oil price continue to rise this will potentially bring that rate hike further sooner rather than later.

It also didn’t help that the ECB (European Central Bank) rose rates by 0.25% to 4%. While in of itself not relevant to the US (or Australia) such moves can a case of follow the leader with many global central banks expected to take similar steps, in particular the commentary from the governing council which said, “Key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target,”

This adds to the “one more time” narrative.

AUS S&P/ASX200

A strong +1.7% week for the ASX200 took us back right where we were two weeks ago (1 point higher actually) with Friday being the best one day return since before the reporting season. BHP, RIO and FMG rising strongly (more on that in a moment)

S&P/ASX Weekly chart

Much of the weekly rise came on Friday as investors cheered signs that there is still life in the Chinese economy. According to official figures, China’s industrial output grew 4.5 per cent in August from a year earlier, accelerating from the 3.7 per cent pace in July, suggesting that its flurry of support measures (interest rate cuts, boosting internal consumption) may be starting to slowly stabilise the world’s second-largest economy.

Now, I hate to sound cynical as I love a market pop as much as the next guy… but I am often astounded at how quickly such measures seem to have an impact on the Chinese economy… it’s as if everyone within the economy is choreographed to act as they should when a lever is pulled? It's almost like a well choreographed parade!

Scurrilous presumptions aside…. Improving sentiment towards China saw iron ore rally, with Singapore prices jumping a further 1.9 per cent on Friday on another few strong days to near $US123 a tonne. This marks a 20 per cent rally since the lows and pessimism of mid-August.

This did much to buoy the prices of our large iron ore stocks with strong weekly gains for all our major producers, with Fortescue Metals Group up 9.7% on the week, Rio Tinto up 7.5% and BHP rising 5.8% this was enough to lift the broader market.

Domestically things too are still in the Goldilocks mode where unemployment remained at 3.7% (still VERY low) but pleasingly over +60,000 jobs were created, an almost threefold increase from the previous month. Analysts are expecting another rate rise from the Reserve Bank in time, but all indications are they are not in a rush to pull the trigger as it appears we are still headed for a soft landing without need to nuke the economy. The latest global news further supports that theory.

The thing with economic data is that it is current (until it is not) therefore expect to see this positive sentiment was over the market for a few days more and hopefully it will be enough to see more of a run on. I feel that though the market continues to move sideways, the general disposition is for it to move up from here.

Readers will also note that a larger number than usual of Uranium stocks have just entered the “5% from 52 week high screen” (see below). Uranium stocks had a good week as the price of yellowcake (U308) rose to around decade highs last week. Reports say this rise is on the back of the world nuclear association believing that the demand for uranium for utilities will double by 2024. Further as fears linger that the war in the Ukraine and its after effects will linger for longer, Russian supply will be limited. This alongside ongoing issues in Niger (5% of world production) has seen sentiment return for the much hyped commodity. Many have been waiting for U308’s renaissance but have been disappointed in the past. They will hope that times are ‘a changin’ and their patience will be rewarded.

To finish... in what has to be the send off of the year, we conclude with this commentary from former Reserve Bank Governor Phillip “Giggles” Lowe, who told staff on Friday at his farewell speech that he aimed to get his golf handicap below 10, “and I expect to reach that goal before inflation returns to the 2 to 3 per cent target range”.

We’ll miss him!

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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.

If no one asks for a stock to be analysed, this section will remain blank.

Also please note, that while we may receive a number more queries than ten per week, we retain the right to save a stock for another week, or ignore it all together.

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.

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 @stockopedia.com.au">support@stockopedia.com.au

ASX:LAU Lindsay

• StockRank 99

• Momentum Rank 98

• QM Rank 99

• VM Rank 96

• A$1.17

Lindsay Australia (ASX:LAU) was a selection in the NAPS portfolio and has done well in that time, though the chart is at a very interesting juncture and needs to be watched carefully from here.

ASX:LAU 1 year Daily chart

Since the first peak in May 2023, investors can see an obvious sideways pattern forming for the stock. Further the levels of resistance and support are significant (given each has been tested three times) At the moment the price is closer to support, so the question is what now?

In very simple terms, the price needs to hold a $1.09 otherwise the downside target becomes $0.80. The theory is that if the neckline (support) is broken after the price has two or more distinct peaks that failed then the next target becomes the equivalent $ amount that was the difference between the support resistance lines. A breach of support will be a very strong reversal pattern.

However for those with an optimistic view, buying here near support means “you won’t have to wait long to know if you are wrong” . Your immediate stop would be $1.09, and you would look to take profits at $1.39 - $1.40 which is that resistance level again. If it fails, at least you know what the next downside target will be (I will let you figure that out!)

ASX:RIC - Ridley Corp

• StockRank 90

• Momentum Rank 80

• QM Rank 89

• VM Rank 85

• A$2.32

Ridley (ASX:RIC) was last covered in April and we spoke about the wedge that had been forming. As expected the break led to a strong move (to the downside.) But pleasingly it help support of the previous sideways channel and has since regained its footing.

ASX:RIC 1 year Daily chart

I like the fact the price has now breached $2.25 which was the consolidation level back in Mar-Apr this year and a previous resistance point going all the way to 12 months ago. Now that it has breached that level, I will wait for a pullback and then consider.

The chart looks promising. Its now in the shine zone as the 50d moving average has crossed above the 200d. A stop from these levels (for those who can’t wait) will be at $2.06. However if the stock does take a breather, and you can pick it up for 10c - 15c cheaper then a stop at $1.84 would be appropriate.

ASX:BIS - Bisalloy

• StockRank 84

• Momentum Rank 50

• QM Rank 72

• VM Rank 78

• A$2.28

Bisalloy Steel (ASX:BIS) manufactures quenched and tempered high-strength alloyed steel plates for use on mining, transportation, military and security settings. It's a great Australian manufacturing story and has traded on our market for some time.

ASX:BIS 1 year Daily chart

However the company is quite illiquid and has no broker coverage - therefore it is under the radar in many respects. That said it also makes it quite difficult to chart such businesses as price moves can be erratic. Therefore under normal circumstances, fundamentals are a better decision making tool in such scenarios. BIS is a company that has been perennial cheap and of reasonable quality.

That said, momentum has been solid in recent times. The recent pop particularly pleased, sending the price back to 10 year highs quite aggressively. If fact if it can close this month out at these prices it will be at 10yr monthly price highs

ASX:BIS 10 year Monthly chart

But prior to that the company experienced a tough time, the GFS, competitors flooding the market with cheap product and difficult capital all hurt the company therefore the price is still well off all time highs.

Looking at the chart though there was a long 10 year basing pattern up until 2020, until the price started achieving new highs and higher lows. This is generally a very positive marker for the stock and from a long term perspective looks well and truly on the road to recovery.

ASX:BIS 20 year Monthly chart

Those wanting to trade based on the long term charts would look at support at $1.78

ASX:GUD - GUD Holdings

• StockRank 96

• Momentum Rank 86

• QM Rank 97

• VM Rank 89

• A$12.35

We last covered GUD Holdings (ASX:GUD) in February after a rapid improvement in price. Chris actually covered the stock around that same time and we discussed the benefits of the new leaner entity.

ASX:GUD 1 year Daily chart

From a momentum perspective, back then the price had popped and was trading above $10. I said better buying might be had at closer to $9.50. Mentioned that the next structural support was at $8.20 and traders may prefer a tighter stop.

The price did pullback and even fell below $9.50. In fact it got all the way down to $8.18, and just like a rubber ball bounced off that structural support. It eventually did cross back above that $9.50 and has run rapidly since. A very strong result from the auto parts business is vindication for its decision to sell the Davey Water products in August and analysts were very happy.

Its inthe shine zone and is at 52 week highs. Further the rise in price has been supported by a rising on balance volum figure showing growing conviction for the stock.

So if you bought here a parachute stop of $11.56 would be appropriate for those with a short term lense. For those waiting for the pullback to then consider a possible entry then my stop would be $10.20. I would chose this level as if it gets down there it has filled the gap created at the time of its report and it would be lower than the previous higher. A target of $8.20 would be back in play if it got there.

But all-in-all this is a good (pardon the pun) chart… we just need to look for the right entry.

ASX:SDR - Siteminder

• StockRank 69

• Momentum Rank 94

• QM Rank 89

• VM Rank 64

• A$4.71

Last spoke of SiteMinder (ASX:SDR) back in April. We spoke of the long term downtrend and that while price remained between $4.33 and $2.72 it was a flip of the coin which way the price would go and it would be best to wait for some clear direction.

ASX:SDR 1 year Daily chart

When the toss of the coin came up tails (assuming you usual prefer to pick heads) the price kept falling and in fact breached the lower end of the channel. That acted as a somewhat line in the sand and the price rebounded.

Fast forward 6 months and we are seeing the pattern we were hoping for all the way back then. Price has broken above $4.33, it pulled back and rose higher and it now seems to have settled.

Stop loss from here is $4.33 (that previous level of resistance). For those that prefer to buy closer to support, then your stop will be $3.51 which will the gap created at the end of July at the time of their quarterly. The focus on many of these IT businesses to become cash positive has seen many improve in recent times.

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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.

Read the “how to” article above to learn more

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 eg PDN last week (sorry).

Data is at 16 September and is sorted by the stock code.

Changes from last week

Shine Zone list as at 16 September

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“Buses pulling out of the station” *New Section*

There is a common belief among many charting practitioners that a price rise accompanied by volume increases enhances the chances of price recovery.

To that end we have introduced a new table of stocks where that past negative / flat sentiment is now changing due to an improvement in price AND volume.

This list will be updated once a week, however we expect VERY HIGH TURNOVER as normally one would not expect a stock to stay here for a very long time. For example, if the price stops rising and falls it will be removed from the list, likewise if the stock keeps rising then the past will no longer be flat/falling and it too will be taken from the list.

This list is only to be used to flag stocks for further consideration, and as the name of this section suggests is simply trying to find business that have done nothing for some time, but are now improving. Whether they continue to do so is anyone’s guess. Therefore this is not a buy or sell list. You MUST look at the chart to see where the stock is at.

If you are interested at running this list more frequently or wish to change the parameters, the filter criteria I used in compiling this list are

• Absolute Price change 3m less than or equal to 3

• Absolute Price change 1 m greater than 0

• Recent Volume surge (10d/3mth) greater than 0

• Market cap greater than $200M

Given the timeframes involved, this screen is more for those with a medium term horizon. This scan is not appropriate for day traders or buy-and-hold investors with long time frames. Please let us know any feedback

Data is at 16 September and is sorted by the stock code.

Changes from last week

N/A - Though in future when they occur they can be for either good or bad reasons - check first!

“Pulling out of the station” on 16 September

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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 09 September 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 September 16, 2023

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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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