Momentum Monday 19 June

Welcome to Momentum Monday, after a week that investors learned the power of sentiment on market moves - more on that in a moment.

For sometime, I have been on ABC Radio in Melbourne delivering an end-of-day Market Wrap. We have now figured out a way to capture that recording and make it available to those interested (namely those outside of Melbourne).

We will be publishing this recording on our Facebook page and on my Twitter feed. Here are the links to the respective pages:

Facebook: https://www.facebook.com/StockopediaANZ/

Twitter: https://twitter.com/Elio_DAmato

The recordings are never more than 3 minutes long. So follow Stockopedia on Facebook, or me on Twitter and the recording will appear regularly within your feed at about 4:45pm - 5:00pm each day.

The content for this week's edition is:

• Broader market sentiment

• Member corner

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

• 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. If you have any suggestions for us, please be sure to include them in the comments below (but I reckon it is pretty good now!).

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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. While this analysis is not to time specific entry into or exit out of stocks, they are useful in helping us determine how aggressive/cautious traders should be in their trading.

US S&P500

The US Market continues to rebound and is rapidly approaching the next structural point of ‘possible’ resistance,and dare I say it, all time highs of late 2021. I say possible because it treated the recent short-term level with indifference. Despite Friday’s negative close, for the week, the index rose 2.6%.

S&P500 Weekly chart

That resistance level, as we stated last week, is the upside target ot 4543. Given the strength and veracity of this move, the only change from last week’s view is that we now want to see 4056 hold. While in itself a breach below that level won’t flag a change in sentiment, supporting such an aggressive move at this point will create a love shape on the chart, and provide a strong platform to tackle the all time weekly high of 4766.18 seen in December 2021

But this was the fifth positive week in a row for the S&P500 (last time such a run has occurred was November 2021).

Traders were happy that despite the hawkish tone, the Federal Reserve chose to keep rates on hold following 10 consecutive rate rises. This positive development was further supported by a good set of inflation numbers that showed CPI was at its lowest level in two years.

The activity of the last few weeks continues to support our view that investors using Momentum can be exposed to markets. As we said last week though, eventually a pullback will need to occur. We remind investors that this will be normal and caution against panicking, particularly if the index can stay above prior identified levels.

As an aside, markets in the US will be closed for observance of Juneteenth.

AUD S&P/ASX200

Some investors will claim blessed relief as the S&P/ASX200 experienced the first positive week in four.

S&P/ASX200 Weekly Chart

We still see no change in the broader market sentiment, and in our view, as the 1.8% rise experienced in our shortened week was only enough to take us back to Mid-May levels. But after watching in frustration as the US market powered on for the last month, investors were finally left to feel vindicated in their view that our stocks should reflect similar positive momentum.

Likewise the future direction of interest rates took center stage as employment numbers showed that over 75,000 new jobs were created in May, 4 times more than what economists expected. This was further supported by a drop in the Unemployment level, indicating that things may still be running a little hot and that the Reserve Bank will likely have to raise rates again in July.

With many now flagging our trajectory into recession, the market still rose. And that highlights the power of sentiment,where the bullishness of the US was enough to block out our economic and company woes as many, especially retailers, flag the challenges they are facing.

NZ S&P/NZX50

Speaking of hurtling into recession, we have talked about the impending arrival of one in New Zealand and this week we learnt they have “officially” entered into one.

However investors may be wondering whether there has been a major impact on the market over there?

S&P/NZX50 (normal chart) vs S&P/ASX200 (orange line) 5 year weekly chart

Readers may be interested to know that over the past 5 years, the NZ50 has actually outperformed the ASX200. However if you look more closely at the chart, you will notice the underlying patterns of both charts are quite similar.

This tells us that irrespective of the challenges faced by the NZ economy, the majority of its market’s performance is dictated by that of the Australian market. Remember, many of the NZX50 are dual listed on the ASX, as a result sentiment will often be mirrored and reflected in both indices.

Therefore notwithstanding the immediate challenges for the NZ economy, the market’s fate will be more connected to the ASX’s direction. Though it is important to acknowledge that companies (even on the ASX) with significant NZ exposure will likely see an impact to their regional operations and investors should be wary of this. 

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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.

The analysis will be akin to what was covered under the “Stocks of Interest” within the previous Momentum Monday reports and is highlighted in the Shine Zone area below.

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:MAD Mader

• StockRank 66

• Momentum Rank 75

• QM Rank 86

• VM Rank 49

• A$5.06

We have covered Mader (ASX:MAD) a few times. To view our past coverage of the stock and what we said please click here

You can view this and any other company commentary via the “Discussions” tab

MAD in very simple terms is the type of chart I have liked for some time, but as the question has intimated, is this the stock taking a breath preparing for another run? Or has the stock run out of puff following the last push on 31 March? I will come to Mark Minervini’s VCP Pattern in a moment, but for now I will look at MAD through my eyes.

And I do have my eyeballs on them, as they fell out of the shine zone last week.

ASX:MAD Daily chart 1 year

The price is currently undertaking a controlled pull-back after attaining a new higher high in May. For investors that got into the stock above these levels, and appropriate stop would be $4.68, as that coincides with the highest low seen in mid March.

For those that bought them earlier, say at the time price returned to support in mid to late March, I would give the price a bit more time to breathe and would have a stop at $4.16 which will coincide with the higher low of April and will likely coverage with the 200day MA as that line is still rising with the indicator catching up on the strong moves witnessed.

All bets are off if it crosses below the $3.50-$3.70 range which was a strong resistance/support point in the past.

I started with the sell zones because they also provide nice possible levels for entry. As you know, I prefer to buy on pullbacks from an initial break, preferably near support. So we have had a new HH and I would be looking for the price to keep retracing to around $4.68. Buying around that level means, “I won’t have to wait long to know if I am wrong” as I can put a stop loss in at $4.16.

Let’s take the other scenario. What if it has retraced to its maximum and starts to improve again? For this I am going to use elements from the Minervini’s VCP (Volatility Contraction Pattern).

First, I just want to say Mark Minervini is a well respected trader of renown, who has spoken to our global team before. In order to read topics on Mark and his interviews with Stockopedia, type in “Minervini” in the search bar and a selection will appear.

Minervini’s VCP are a set of guiding principles to help identify breaks to the upside that are sustainable and likely to result in probabilities that the run will continue, and that it won’t eventuate to be a fake breakout.

I don’t have the time to cover all the principles and I urge you to read previous commentary on Mark and his methods, however the few that are particularly pertinent here are:

1. Do you get the breakout volume you’d expect to confirm the breakout?

2. How close is the stock to support and resistance?

Many of Mark’s principles are adaptations of Stan Weinstein’s teachings which I too have closely aligned with therefore the concepts I will now discuss will resonate with previous readers of this contribution.

In the past, many of MAD’s big up day (big green bars) have been supported by big volume days. This shows buyers are committed. But then you want to see a period of consolidation where the price holds support AND volume doesn’t pick up on down days. Once the pullback comes to support that is when you can buy in preparation for a possible next run up. Look at MAD, especially the most recent strong green bar at the end of May.

Since that *POP!*, the price has retraced/consolidated, but note how the volume has declined as well?

ASX:MAD Daily chart 3 months

So with Minervini’s principles, the chart looks like it is appropriately setup. Price and volume have performed as expected. You will also see that for the last two weeks, price has also decreased in volatility (another thing he looks for) . So if the stock stays above the support line at $4.68 and if Mark was looking at the ASX, MAD would be on his radar right now.

ASX:AD8 Audinate

• StockRank 69

• Momentum Rank 95

• QM Rank 88

• VM Rank 68

• A$9.80

Keeping with the theme of Mark Minervini, another investor has asked about Audinate (ASX:AD8).

I last spoke of AD8 in April. At the time pointing out the rising triangle and target of $10.10. In this question though, our Stocktopian has asked whether the stock is preparing for the next leg up, and in the discussions previously had on the VCP method,it looks like it is.

ASX:AD8 Daily chart 1 year

After two months of consolidation from March to May bouncing around resistance, the stock finally popped and has seen the price pullback on reduced volume. The price pullback stayed above the previous support/resistance level. (even above the 2.5x ATR which is what I like to see.)

ASX:AD8 Daily chart 3 mth

Again, if Mark Minervini were trading the Aussie market, one has to assume he would be all over this. Support from the tech sector optimism in the US has also helped the price.

ASX:TNE TechnologyOne

• StockRank 75

• Momentum Rank 99

• QM Rank 99

• VM Rank 52

• A$15.89

I last spoke of TechnologyOne (ASX:TNE) at the start of the year after the pullback then. The stock has continued on its merry way.

ASX:TNE Daily chart 1 year

Though I note it has fallen out of my shine zone, so I wouldn’t ‘buy it’ just yet. But this does NOT mean I would sell it if I am holding it. (Which I do).

I would want to wait for the price to cross back above the 2.5x ATR, and then have a subsequent pullback to around $14.75 - $14.80 as I have a stop at structural support at $14.50.

Those who have had it for a while could wait till $13.90 to lock in gains.

Again it looks like a stock Mark Minervini would look at right now. Only issue is that the volume doesn’t quite move to the appropriate play book. That said,one might be willing to ignore that given it’s obvious that TNE high quality Tech business.

ASX:MMS McMillan Shakespeare

• StockRank 96

• Momentum Rank 92

• QM Rank 95

• VM Rank 94

• A$16.79

I last covered McMillan Shakespeare (ASX:MMS) in March. It was also one of our NAPS portfolio stocks. As the question has intimated, MMS has broken out of the frustrating 6 month range that had frustrated shareholders for so long.

ASX:MMS Daily chart 1 year

I spoke about in March as it did peep out of the channell and we were waiting for the retrace and for the stock to hold support, which it did.

The subsequent has been pleasing creating new higher highs and is now at close to 52 week highs, and would appear on its way to all time high levels of $18.40 - $18.60. I suspect there will be a bit of resistance at that point given previous tests of that level in 2018, 2017 and 2013.

I don’t think there is a single charting indicator known to man that would suggest MMS is not a strong chart at the moment.

A stop would be appropriate at $15.12 if recently purchased. $12.76 would be appropriate if you have held them earlier post the COVID crunch.

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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

To reiterate that the “Shine Zone” are rules for possible buying. They are not for holding and/or selling. Read the “how to” article above to learn more

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

Changes from last week

Shine Zone list as at 16 June

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52 week high screen

In this section we identify stocks within 5% of their 52 week 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. However movements on this list may alert you to interesting charts so be sure to look at the Stockopedia and the chart first.

Data is at 16 June and is sorted by the stocks closest to their 52 week 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 Jun 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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The author holds interests in stocks highlighted specifically in the article: AD8, MAD, MMS, TNE and other companies listed in the data tables . This position can and will change at any time without notice.