Momentum Monday 1st May

Welcome to the new and revamped Momentum Monday

Here is the format for the revised report:

• Broader market sentiment

• Member Corner

• Stocks in the “Shine Zone”

• 52 week high screen (including changes)

I will include a description at the top of each section which will highlight the intention and how the information should be digested. Be sure to read them. As always, you don’t have to read everything, just go to the sections that are of interest to you.

Hopefully you enjoy the new format. Be sure to let us know your feedback down below and hopefully we can continue to support those of you that apply a Momentum elemnent to your investing moving forward.

And don’t be shy. Please interact with us. This service will only be as powerful as what you contribute.

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Broader Market Sentiment

Here we look at market direction (both in the US and ASX). This is not to determine an entry or exit signal… We should always rely on individual charts of stocks to do that. But rather to understand how aggressive/cautious traders should be when considering individual stocks.

We have split the discussion for each region into Chart sentiment and Macro sentiment so that the two remain separate. We have included discussions around macro sentiment because, rightly or wrongly, they move markets.

S&P500

Chart sentiment

The market finished the week by peeping it head above the HH and therefore our next target is now 4280.

S&P500 Weekly chart

The pleasing thing to note has been that this is now the second short term higher high meaning the index is going on a little gallop and my initial goal of 4180 looks like it will be broken (hopefully). The Weekly RSI is above 50 and MACD is positive.

S&P500 Weekly since 1 July 2022

We can buy into global equities with support at 3840.

Macro sentiment

We finished the week with news of another potential Bank Failure in the form of First Republic and the release of another key inflation figure, the personal consumption expenditures index (which excludes food and energy) rose 0.3%. Markets widely expect the Federal Reserve to raise rates another quarter percentage point at next week’s meeting, it will be the tenth rate rise this cycle.

In typical sentiment style however, the market put aside these concerns and the S&P500 rose for both the week and April +0.9% and +1.5% respectively.

Notwithstanding these events, earnings season has been particularly good on low expectations, particularly from the tech sector which obviously makes up a large part of the US Market. We mentioned a few weeks back that earnings season will drive a lot of sentiment and so it has been the case. At the time of writing, some 80% of companies that have thus far reported have beaten expectations, highlighting the low benchmark by analysts this season.

Further there is a growing and strong belief that this will be the last rate rise, before we start to see an easing cycle as higher rates begin to bite. Evidence supporting this view came in the form of a report from the Commerce Department showing the US economy had expanded by 1.1%, rather than the 2% expected.

And remember the old VIX index? - otherwise known as the 'fear' index? That is close to its lowest point in 2023 indicating markets are relatively comfortable of where things are at right now. A pessimist however will view an imminent credit tightening from the fallout in the U.S. banking sector will likely cap economic growth somewhat for the rest of the year. But no one is listening.

VIX Volatility Index S&P500 CBOE 1 year

Interesting times indeed, however for now the macro issues appear to be under control and are not playing a major role in sentiment for the minute.

S&P/ASX200

Chart sentiment

Despite the strong April performance of 1.8%, this was our second consecutive down week on the S&P/ASX200

S&P/ASX200 Weekly chart

As discussed last week, the recovery since the terrible February now sees price hovering around November levels. And given by the behaviour of the past two weeks, the market is hanging on for dear life. It does however give the impression it wants to go higher, however with a flat RSI and MACD, the index remains in its range.

The fear of course is that we are starting to see a short term head and shoulders pattern occur which is a reversal pattern. However if that forms, the target price is still above support, providing optimism that the chart is starting to look in our favour,

Holding these levels will likely see a retest of Resistance, a break below and support becomes our next target.

Macro sentiment

This week was dominated by quarterly inflation coming in at 7.0% as opposed to 7.8% in the December qtr. While economists and media analysts were quick to champion this number as a sign that a rate pause can continue when announced tomorrow, the reality is that inflation is cumulative and the rate is still very high.

That said it has created a potential catalyst for markets as economists are now predicting a rate freeze come Tuesday’s rate decision. Whilst a cynic may say, “Of course rates won’t change given the government pressure of the Central Bank at the moment”, we need to accept that the current level is still unacceptable. The obvious risk at the minute is that If there is a rate rise on Tuesday, the market won’t expect it and therefore may cause some short term down move. If they keep rates on hold as expected I don’t see that driving the market.

If commentary from the RBA further suggests inflation concerns are easing then the market should maintain a stable footing, but keep an eye out for margins. As we have talked about on various different forums for a few months and is now evident in recent company updates, the costs of doing business have been rising and that will flow to the bottom line.

Despite all the above, the market rose a very strong 1.8% in April. Our best sector for the month was Industrials, whereas Materials was our worst. This mainly on account of a string of disappointing quarterly reports that all said the same thing: bad weather and staff shortages were impacting production.

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Member corner

In this new section we will provide a detailed chart assessment, on a maximum of two 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 two 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.

If you have a stock you would like analysed from a momentum perspective, please write it into the comments section below.

<No requests received from Members this week>

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Stocks in the “Shine Zone”

I have articulated my momentum journey in articles that are published within Stockopedia.

• Episode #1

• Episode #2

• Episode #3

There are clear things 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

For this exercise I have also changed one rule, where I will include stocks with a market cap of $200M or more (this is different from the $500M criteria previously used within the MM report.).

In this section, I will highlight stocks in what I have called the “Shine Zone” and identify weekly changes to the list.

This list has been produced with an element of human assessment ie. looking for a price above the 2.5x trailing stop loss line. Therefore, there is a chance that there may be an error. Should you identify one or notice an omission, please be sure to add it to the comments below. Note: The stock must meet the criteria above.

And some reminders:

I don’t blindly buy on these rules, as I then look for support/resistance levels to identify possible better entries and stop loss levels. I would also look at:

1. Liquidity

2. On Balance Volume (OBV) to see if the recent price action is supported by volume.

3. Direction of the 50 and 200 day moving averages (I prefer to see them rising)

However the preliminary criteria identified above are what shines a light on a stock that I can then put onto my radar for possible consideration from a Momentum perspective. In the spirit of the objectives of Stockopedia, the stocks in this list are not automatic buys.

NOTE: The criteria for the “Shine Zone” are rules for possible buying. They are not for holding and/or selling. There can often be times where I continue to hold a stock, even though one of the rules above have failed. (For example, the price is below the 2.5x ATR but is still above structural support. Please read my Momentum journey to learn more.

On Wednesday I will publish an article explaining how members could approach using the list in the most efficient manner.

Data is at 28 April and is sorted by the stock code.

Changes from last week

N/A as this is our first week

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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

As an added feature we will now record changes to the list week to week. 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 Stockopedia and the chart first before making any decisions.

Data is at 28 April 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

List for 28 April

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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 stocks highlighted in the data tables . This position can and will change at any time without notice.