Momentum Monday 20 March

What a week!

Much like petrichor before the arrival of a big storm, for many of us who have invested long enough, we got a smell in the investing air that we hoped we would never have to live through again.

Over the weekend I wrote a piece on the current banking “crisis” explaining what has happened to date and my views from here. Be sure to read the article though there has been an update that UBS has purchased Credit Suisse in a deal aided by the regulators. This US$3.2B takeover of the 165 year old institution further evidence of a serious intent to ring fence the issue to further ring fence the issues. .

Just briefly, be sure to register for our upcoming webinar “Are you confident in your stocks during nervous times?” If you haven’t already booked your place be sure to be clicking this link.

We also have a new contributor to Stockopedia Anton Crabbe, he joins Alan Hull as contributor to our content and you can read his first contribution here. We will look to introduce more over time so be ready to hear more varied and different research and education.

The agenda for today’s report is:

• Broader market sentiment

• Stocks of Interest

• 52 week high screen

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Broader Market Sentiment

First a tip: We understand it feels worse for retail investors in specific stocks at the moment rather than what the broader market index is telling us. Part of that is because we have money at risk which when falling never feels nice, and part because of the sequence of events that occur during a broader sentiment pullback:

• The first stocks to tip over are the ones that have done the best so far. (This process is often referred to as profit taking). DIY investors can be drawn to these businesses too late. So if you bought Coal, Lithium, Rare Earths or any other stock which had a good prior 12 - 24 months, a correction always feels worse.

• Next in the list are stocks that should have done better to date, however haven't. Investors here just cash in their chips saying "if it can't go up when the market is going up, then I am out."

• Then if the negative sentiment hasn't abated everyone else will get hit as the last wall of resistance falls over and we are starting to see that at the moment.

There are two exceptions to these behavioural rules. One, are stocks that have already been smacked heavily in the months prior. The irony being they can hold up quite well during periods such as this. The other exception are the cash hungry penny dreadful micro-caps where individual business success, or failure, drives the price.

Keep all this in mind when you read this week’s commentary.

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

As mentioned above, much of the activity that caused the volatility of last week was covered in the recent article I wrote here.

So all that aside, we now look at the chart and it may not feel like it but the US Market actually finished higher for the week finishing up +1.43%

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S&P500 Weekly chart

I know what you are thinking… but I did double check the calculation and I assure you the S&P500 was up for the week.

In the scheme of things it doesn’t change much, however the index's ability to hold 3837, a level we have been flagging in recent times, has to be acknowledged. While it is still too early to suggest this level will hold, and that a break above the short term resistance at 4136 is indeed possible, it suggests to me that even in the face of fear, there is a strong urge to will the market on. How strong that defence ends up being only time will tell, but to rise in a week where the market could digest two bank failures, a third which needed support, and all within continuing an environment of rate increase expectations - to me suggests that we have one big dam wall of positivity holding things up. Fingers crossed it doesn't break.

The other frustrating thing, particularly for trend following investors is that the golden cross (ie 50 day moving average crossing above the 200 day moving average) of February hasn’t really followed through and the 50 day average is slowly closing the gap back down.

S&P500 in 2023 Daily Chart

The biggest issue with this, especially for Momentum Investing, is that sideways movements are the bane of our existence causing many false signals and unprofitable trade. Fingers crossed the attempts by regulators to instil confidence has the effect of breaking us out of this sideways channel.

Unsurprisingly the RSI and MACD support this flat market sentiment, so the coming weeks will be crucial. Though I get the sense like a prized boxer, if the market has got through the last few rounds of a barrage without expenditng much energy, then there is a hope that it will come back with a wet sail.

But remember,”Hope” is not an investment strategy so we will see what we are dealt next week.

ASX200

What the S&P500 didn’t exhibit in fear, our market as always was happy to accommodate with the S&P200 breaking below the short term support level of 7038.

S&P/ASX200 Weekly Chart

Perhaps this is unsurprising given the large impact banks have on our index and how the recent fears of contagion could potentially impact them?

Whatever the reason, after six consecutive down weeks, and the creation of the new lower low at 6994.8 means that 6474, or the bottom of the channel comes into play.

There are two very important points I want to stress:

1. TA is not an exact science (just like FA). Therefore, while this is a small break below the 7038 short-term level, the index could just as easily bounce back and rise strongly. This level was not a strong or important support point, but one we had hoped (there is that word again) would hold, creating a nice step up - but nonetheless we are on alert.

2. A move to 6474 is not inevitable. Hopefully any pull back stays above that level, ensuring the downside of the channel is not broken which will be enough to keep us confident in buying stocks. But I do believe that this level is more significant for market participants as it provided a floor in the 2022 that was just experienced.

As scary as this may sound, 6474 is only a fall of 7.5% from here. So while you are investing/trading, keep an eye on this level as it marks a shift in sentiment in breached, and as mentioned last week don’t turn your back on stocks.

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Stocks of interest

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 here. I will discuss where their charts presently sit to provide context for potential and current investors. You can revisit the series of articles starting with Episode One here.

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:NAB National Australia Bank. QM Rank 78 A$28.28

While National Australia Bank (ASX:NAB) doesn’t possess a QM Rank above 80, given the sector is the topic de jure I felt it worthy to comment on.

I last commented on CBA back a month ago flagging $101.05 as an appropriate stop for those trading the stock and excluding those just collecting mountains of cash in dividends given they have held it so long.

For now we look at NAB and the recent break of $28.73 means a target of $25.92 comes into play and that will be a significant level.

ASX:NAB 1 year Daily chart

The past 12 months have seen a series of lower highs which creates the downward bias for the stock presently. However the $25.92 level is significant because this coincides with the June 2022 lows, which also matched a low from July 2021.

A break below $25,92 could see sub $22 target come into play, with the ultimate base of the COVID reset the ultimate low level (which I do not think it will meet.)

ASX:NAB 5 year Weekly chart

Given the sideways nature of the price for some 2 years now, I would look for a clean break above $33.14. By a clean break I mean the price crosses above that level, has a retrace, and then subsequently breaks above that point.

Until then the chart continues to have a downward bias and traders should remain on alert. The company is due to report in May and unless inflation is tamed, there may be some cautious statements that the market may not want to hear. (Speaking of which…. long term holders can choose to ignore the previous commentary and happily keep collecting your dividends.)

ASX:ANZ ANZ Group Holdings. QM Rank 88 A$22.81

Let's stay within the same sector as it is topical for the moment and let's look at the only one of the big 4 with a QM Rank above 80, ANZ group (ASX:ANZ)

ASX:ANZ 1 year Daily chart

It too has a chart in a precarious position. Notwithstanding that the previous all time high was 2015, and despite attempts to sort the business out operationally, investors have failed to get excited.In more recent times the company came up against resistance at $25.91 and failed to break through it two times.

The last trade at $22.81 created a new lower low. Such patterns are continuation signs and the target is now $19.80.

Will it get there? Well I suspect the stock will find strong support at the $20.90 - $21 range. If it fails that then I think it will and the ongoing disappointment for long term investors will continue.

NZE:AIA Auckland International Airport QM Rank 98 NZ$8.86

As tourism gets back on its feet one stock that has done well is Auckland International Airport (NZE:AIA)

NZE:AIA 1 year Daily chart

Following the COVID reset, the stock staged a fairly speedy recovery, however for 2021 and 2022 experienced a general sideways channel between $7.00 and $8.15.

NZE:AIA 5 year Weekly chart

That was until the start of this year where the price broke above the channel and has continued to power on, fuelled by increased traffic and capacity from international airlines. This run also helped by the fact that AIA returned to profitability this latest half.

Already close to 52 week highs, the next target is all-time highs at $9.88. Beyond that and the sky's the limit. A stop from here would be appropriate at $8 15, the top of the previous channel.

AIA (HKG:1299) also trades on the ASX under the same code.

ASX:360 Life360 QM Rank 81 A$4.95

Beyond the possible contagion effects, some ASX listed companies had deposits with SVB. Particularly those with a heavy US focus. One such business was Life360 (ASX:360) .

While the company has confirmed it has no re-accessed its funds, from a price perspective investors haven't quite completely cashed in yet.

ASX:360 1 year Daily chart

The stock suffered a tough last few months as rising rate expectations always play havoc with IT businesses and a clear level of support is located at $4.75. I have held the stock on the recent recovery, after the price capitulated from all times in 2021.

At the moment the price is hanging on for dear life, so for those with an aggressive disposition you won't have to wait long to know if you are wrong. For those who want to wait for at least some sign of life the price as a minimum needs to get back above $5.37. But even then, the stock has a lot of work to do before it can consider previous highs.

It is also on the edge of my QM Rank preference (greater than 80), which much of the current score of 81, supported mainly by Momentum only. As readers will attest, this factor could easily fall below that.

I made money on the first run a few years ago, but if the price crosses below $4.75 I will take a small loss this time around.

ASX:NWH NRW Holdings QM Rank 95 A$2.20

To highlight how using charts to time your entry and exit is a task that requires constant attention, we last spoke of NRW Holdings (ASX:NWH)  last year. At that time the stock had been on a tear, rising from $1.85 to $2.75.

We highlighted our preference for the stock to have a pullback in order to sustain the run. Instead the stock kept going and hit an intraday high of $3.15. As highlighted before, when we see such aggressive moves to the upside we need to be cautious on the downside, and so has been the case with NWH.

Since the peak, the price has retraced aggressively with plenty of opportunities for traders to exit from $2.80 to $2 65.

So when would one consider a re-entry? In my view, not now. First, the price needs to consolidate and stop falling. Volume in the last few days has picked up, though pleasingly on Friday we saw a massive spike and the price closed up after the prior day of heavy selling. The only issue for the stock was that it was unable to close near the highs. Indicating that after buyers had initially staked a claim, the sellers returned in the afternoon.

Long story short, NWH is a classic reminder for traders how when their stocks run, then they need to be more cautious than if the stock was just treading water.

ASX:RWC Reliance Worldwide Corporation. QM Rank 88 A$3.40

Reliance Worldwide (ASX:RWC)  was recently covered in depth by one of newest contributor Anton Crabbe. You can read his article here

From a chart perspective many of the recent issues he discussed are captured in the price moves.

ASX:RWC 1 Year Daily chart

It hasn't had the best two years and has been in a consistent downtrend for some time.

Those keen to take a position now would best served by putting in a stop loss at $2.85 as that is the level of the previous Lower Low.. Those super-sensitive to price pulls back might consider $3.31 as it is a short-term level of support created thus far this year.

More conservative traders however may wish to bide their time and wait until the price stops falling and crosses back above $4.51, which coincides with the August 2022 lower high. At least at that point we will have some evidence that the sell off has lost some steam

ASX:APE Eagers Automotive QM Rank 94 A$13 23

Eagers Automotive (ASX:APE)  has been amongst numerous automotive groups who have delivered exceptionally good numbers.

Despite this, the stock had been on a steady slide since touching all time highs in September 2021.

ASX:APE 1 year Daily chart

The recent profit announcement and subsequent pop was strong enough to see a new short term higher high emerge breaking up above the downtrend line.

But Dow Theory says we are still in a trend until we are not. In the instance of APE, we have the new higher high, though we are yet to form the new lower low. Interestingly it would seem the price is looking to fill the gap created by the profit announcement.

However even if it doesn't completely close the gap at $11.96, I do think those that want to be more aggressive could try to pick up some stock at a price lower than currently.

The risk with breakouts like this of course, is that it may be a false signal as the price can’t consolidate. While we don’t know whether this will be the case or not, stop losses are advised.

ASX:GRR Grange Resources QM Rank 93 A$0.765

Despite the stock consistently being high quality and dirt cheap, I have not bought into the Grange Resources (ASX:GRR) story on account of the related parties on the share register.

ASX:GRR 1 year Daily chart

Biases aside, it's another lesson on how stocks that experience very rapid rises ($0.25 to $1.75) can be susceptible to aggressive pullbacks .

Especially when they disappoint investors, as GRR did when they recently declared only a 2 cent final dividend. We mentioned this was a risk back when we last covered the stock in January and it played out that way.

Those using technical indicators or stop losses should already have acted as +40% falls are significant. Possible re-entry? As I always believe, price needs to find a floor first, and I would like to see a break above $1.08 to create a new higher high that would provide some evidence that the pace of selling has well and truly slowed.

ASX:MAQ Macquarie Telecom. QM Rank 99 A$59.17

One stock not oftendiscussed despite having a QM above 80 from some time is Macquarie Telecom (ASX:MAQ) . Previously not discussed because of its lack of volatility in price, though that seems like a saving grace for the minute.

ASX:MAQ 1 year Daily chart

As a company engaged in the provision of telecommunication, cloud computing, cybersecurity and data center services it can be considered more a utility than Communication Services business and its price historically has reflected that.

However since the peak in August 2021, the prices has been on a slippery slope as the rising cost of doing business has impacted margins. But there is a lot to like about the defensive nature of earnings so my eye looks for a possible entry into this stock.

I note with interest that for the price to cross above the ATR it needs to hit $63. This coincides with the downward trendline that can be drawn from the all time peak.

ASX:MAQ 5 year Weekly chart

Therefore a cross above $63, then subsequent retrace,followed by another run up could be a good entry. Further getting to $63 will also create a new shorter-term higher high, which will be a nice change following the prolonged pull-back.

ASX:NEU Neuren Pharmaceuticals QM Rank 91 A$13.23

Sometimes in investing you just get lucky.

We had spoken about Neuren Pharmaceuticals (ASX:NEU)  a number of times. Chris last covered the stock in early February which you can read here. I last covered the stock in the Dec 19 Momentum Monday contribution. At the time said that I will sell on the day it closes below $7.14. And it did close below that level,on Feb 22.

That was a day where we held a webinar for new potential members to Stockopedia and the reporting season was going on… long story short, I actually didn’t get to enact the trade on the close. Oh well…. There is always next day right? Well it didn’t close below $7.14 again, and therefore I didn’t have to sell, and as Chris tells us in the article, the converted FDA approval for Trofinetide came through and the price has since sky rocketed.

ASX:NEU 1 year Daily chart

As lucky as I was, I know what I have to watch yet. As discussed above with NWH, the quicker they go up, the more prone they are to aggressive pullback. May not happen with NEU, but it is something to watch. Even if I end up selling I hope to buy back in again as I really like the field it is covering and there are more potential opportunities for their work.

In case you are wondering that is $12.37 and I would love to buy back at $9 - though I hasten to caution - very rarely if ever do such ‘dreamed’ scenarios work, so I keep an open mind.

It certainly was nice to have a little luck after last week.

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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 I have attached 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 17 March and is sorted by the stocks closest to their 52 week high.

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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: 360, NEU. This position can and will change at any time without notice.