Momentum Monday 23 January 2022

We will likely commence this tennis induced sleep deprived week with some positive momentum given the close on Friday both here and overseas.

In Australia, markets will be closed for Australia day, so expect a very busy week announcement wise as companies aim to deliver either their quarterly cash / activities statements or provide updates on their business in anticipation of the coming reporting season.

In the US their quarterly earnings period continues in earnest and its results will have a big say on sentiment over here.

Week ended 20 January 2023

S&P500

Despite Fridays positive close, the S&P500 actually closed their shortened trading week down on lingering concerns of a continued rate rising cycle and impending recession.

Reports from analysts are surfacing saying that thus far it has not been a strong period for US earnings, with magnitude of positive earnings surprises reported by S&P 500 companies below their 5-year and 10-year averages. Looking ahead, analysts expect earnings declines for the first half of 2023, but earnings growth for the second half of 2023.

But the good news in earnings reports came on Friday came in the shape of job cuts at Google and rising subscriber numbers at Netflix. This returned the market to positive momentum on Friday and investors will hope it carries on to Monday.

S&P500 Weekly Chart

I say 'hope' because as mentioned last week, the US Market had hit the upper end of the long established downward channel. The action last week where we saw a break out of the channel but then a subsequent close below it and ultimately down for the week adds risk that we have a new lower high (LH).

We all hope that this was simply a case of the market trying to regain its strength for a tilt at the previous lower high of 4100, remembering breaking out of the downward channel doesn't immediately mean we are out of the down trend, however it will provide some comfort that perhaps the pace of the broader sell off has finally run out of some steam.

If the index cannot break out of this channel then there is a downward target of initially 3700- 3740 range, and should it fail to hold that level then 3583 will come into play, and worse still, so too does 3200 - 3250 which would be as estimated figure based on the bottom side of the downward channel. But let me tell you, if it got to those levels it would feel worse within our portfolios than what the index was portraying.

But hope springs eternal, that last week's breather was just that, and that momentum can return to the market. Hopefully we can create a new higher high to get us to a point where we may see the end of this downtrend.

Investors will hope the RSI above 50 and still improving MACD are positive signs this will likely continue. Even looking at a daily chart, the index is above the ATR and the 50 and 200 EMA are continuing to converge again highlighting a potential continued change in sentiment.

At the risk of repeating oneself, this will be an important week for the US Market from a chart perspective as the next move will prove to be an insight into the likely direction of short term moves over the first quarter of 2023.

XJO S&P/ASX200

It's been another incredible week for the XJO. In three weeks we have eroded all the pessimism of December and for all intents and purposes seem to be preparing for another run at the well entrenched resistance level.

S&P/ASX 200 Weekly Chart

As mentioned in a past Momentum Monday report which you can read here, the low three weeks has become the new higher low that is supporting the run to previous highs.

The momentum created by the new mini-higher high (HH) as discussed last week was enough to see further gains this week. And with many larger caps providing positive quarterly and half yearly updates, we are witnessing a nice shape on the XJO weekly chart.

Thus far our companies have reported quarterlies with many also discussing bottom line guidance, rather than just reporting headline sales figures which has buoyed sentiment as consumers continue to buck cost of living pressures and continue to spend like

The talk from both Governor Lowe and Treasurer Chalmers are attempting to take some heat out of an economy which is hotlining in many places. This causes obvious stress points, and the economy is at risk of breaking, hence the dovish talk in an attempt to have it help interest rates keep a lid on things.

The broad assumption is that one more 25 basis point rise from the RBA will do. Any change in view on that will impact sentiment.

The other pleasing thing to see is volume is returning in these up weeks. While still not as high as the initial sell down in December, the return to money entering the market to support the recent mini rally has been most welcomed.

Both the RSI and MACD support the recent rally as well.

We are starting to see a range on short teem high highs created across the board. All in all, we still shouldn't get too aggressive until we cross back above all time highs, however with some many companies seeing the health of the charts look so much better we can appreciate a willingness to participate in the rally. We encourage investors to look at healthier look charts as there are still plenty stock trading at or close to 52 week lows.

Stocks of interest

Tip: if you scan the list on the right hand side you will see the stocks mentioned within this week's contribution.

This week we are starting to see a number of stocks shaping up for recoveries and/or many primed for continuation of their strong trends. It's been a while since so many charts have looked this promising. Fingers crossed it can continue .

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. To learn more 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.

These stocks are considered purely for the purposes of education. Be sure to read all relevant commentary to understand the context from which a chart is presented. It’s not always positive!

ASX:PME Promedicus QM score 100. A$62.12

If ever there was a stock that encapsulated the idea of, "think less, make more" it is Pro Medicus (ASX:PME) . By any metric this stock is trading at nosebleed levels and has a ValueRank of 1. (This is not a typo). Yet, here we are, close to at all time highs.

ASX:PME 1 year daily chart

PME has been overvalued since I first looked at it back at $9 and so it remains today. The chart however looks bullish (hint: any stock trading at 52 week highs is bullish). Throw in the fact that the stock is high quality, it's not surprising that Stockopedia has rated the stock as a “high flyer.” If you have some time be sure to read the "A Style Classification for every stock" article which explains the StockRank styles.

At the moment the price has recovered to only a few cents away from a lower high last seen in November 2021. Should the price continue its positive trajectory the next very significant level is $66.52 which is an all time high level. Break that and it is blue sky ahead from a chart perspective.

For those interested in a nibble now, a stop loss in the range of $53.95 - $54.00 would be appropriate. If however you have been in this for a long time there are plenty levels of structural support to set a stop loss, however don't fall into the trap that price won't fall. From its peak to trough in June 2022, the price fell over 40% on concerns of a rising rate cycle impacting overvalued stocks, (coincidentally it was still over valued at that point), so pullbacks can and do occur.

However for the immediate future, a retest of all time highs looks imminent and will govern what happens next with price.

ASX:TNE Technology One QM score 99. A$14.35

The last time we spoke of TechnologyOne (ASX:TNE) was at the end of December in this contribution. At the time the stock was having what I called “an orderly pullback”.

Interesting to witness what has happened since then. ( I discuss this from the purposes of education NOT as some reflection on a pre-emptive call).

The price held support (which was the previous all time high) and has since recovered quite quickly to now achieve all times by 2 cents (again a bullish signal).

ASX:TNE 1 year daily chart

This example illustrates the importance of sructural support / resistance and how they can be used with trading.

ASX:NAN Nanosonics. QM Score 94 A$4.78

A stock that has often perplexed investors in Nanosonics (ASX:NAN) the sterilization equipment manufacture is profitable and growing, however it price has been incredibly volatile

ASX:NAN 1 year chart

The most recent dose of volatility came as the company delivered an upgrade on FY23 forecast, though the pace of the Trophon rollout was slowing, and with no word on the progress of Coris, the price swung a lot over the last two days.

Initially the price popped, however it was sold off throughout the day to close forming a bearish hammer. This is a shame as the close was above a previous lower high and may have reflected some stabilisation. However, unsurprisingly the price fell on Friday and the price is now back into a triangle pattern, reaffirming the downward move that has been in place since 2021.

Until it sorts out what direction it wants to head in which a clean break of the triangle, in my view then the downward bias on price remains.

ASX:NAN 6 mth daily chart

While the technology is great and the prospects look solid particular with a new imminent product release, given the volatility for the moment I will let what has to play out first before committing to the business.

NZE:FPH Fisher & Paykel Healthcare QM score 86 NZ$26.09

Keeping within medical devices and it would appear that the PM is not the only thing which is changing in NZ, it appears the sentiment behind Fisher & Paykel Healthcare (NZE:FPH)  finally shifting after a horrible 2022?

NZE:FPH 1 year daily chart

After recent months of creating new higher highs and a higher low the energy in this med-tech seems to be improving.

Price is now above the ATR, the 50 day exponential moving average crossed from below to above the 200 day exponential moving average for the first time since January last year and the recent bounce in support is matched by the rise in on balance volume (OBV).

While the earnings downgrade cycle has hurt sentiment over the past 12 months, there are signs that this is changing and hopefully that will mean this recent recovery is sustainable as it begins its steady climb back up the summit

FPH trades on both the NZE and ASX. Both listings share the same company code.

ASX:ANN Ansell. QM score 88 $29.38

The initial leg of its pullback started on inventory woes for PPE maker Ansell (ASX:ANN). Then civil unrest in Sri Lanka where the company has manufacturing facilities, and the mid-year 2022 sell off contributed to a new lower low of sub $22.

Since then however the price has slowly recovered, it has created a series of new high highs (HL) and higher lows (HL) .

ASX:ANN 1 year daily chart

ANN is another example where a previous resistance range becomes support once the price has successfully broken through.

For now it is back into a short term uptrend, price is back above the ATR, OBV is rising, it has been making steady progress and improving consistently. The range of $27.43-$27.73 would make a good stop loss level for an investor considering a position in ANN at the minute.

While it still has some ways to get back to COVID induced highs its next goal is to fill the gap created back in Jan 2022 at around $31. A subsequent mid pullback from there to above the range level discussed above will provide a platform for the continuation of the upward recovery.

ASX: DTL Dara#3. QM score 97. A$7 15

Data#3 (ASX:DTL) is a stock written about recently here.

On last Wednesday, the stock closed at all time highs and still finds itself around these levels, unable to follow through on Thursday and Friday.

ASX:DTL 1 year daily chart

The recent all time high of $7.27, which was one cent more than the previous 2021 high.

Without getting too pedantic, we are at a resistance level right now. If the downward moves continue this week I can see $6.23 as a possible buying zone.

If however the upward move can continue then a close above $7.27 will be bullish and likely see a further run high.

All in all the chart looks solid on this high quality business.

ASX:PWH PWR Holdings. QM Score 99 A$11.59

For those that are regular watches of the market and its charts, then PWR Holdings (ASX:PWH) requires no introduction.

After a stellar run from the covid lows, the company saw an amazing recovery in price, the sports car auto parts maker now trades at all times .

ASX”PWH 1 year daily chart

Actually for a period the price of $10.00 was a solid resistance level with the price bouncing off it many times, most aggressively on the way down during the Jun 22 correction.

ASX:PWH 2 year weekly chart

That said, once price broke above it, the price took off like a F1 car from the pits. Funny that during the December correction the price found support at the level that was previously resistance.

And therefore with such a strong level in play and price coming off the boil from the introduction day high of $12.50 over the last few days, for those wanting a piece of the PWH story there could be better buying at $11.10. This would still be above the ATR and close to that structural level of support at around ~$10 which would be a good stop loss level.

ASX:SUN Suncorp Group. QM score 87 $12.35

Running strongly on the ultimate sale of the banking business to ANZ, Suncorp (ASX:SUN) is again at key resistance level it has come across and failed to break 3 times in the past 12 months.

ASX:SUN 1 year daily chart

Few things to note here. The first is that should the sale be approved it will likely result in a sizable distribution making its way to shareholders. This is a key reason for the support it has received in the short term.

The company also recently announced to the market that the ACCC believes it will be able to make a decision on the banking sale by June 2023. Here lies a risk for traders in SUN.

Should the ACCC release a negative decision then there is a risk the price could pullback close to the recent lower low which was at a price of $10.00. A positive outcome will likely have a less spectacular impact given the support the price has received recently on account of the expected distribution.

While no immediate action is required on SUL, holders should be aware that another failure of this resistance level may introduce further risk of a severe price pullback.

ASX:QAN Qantas Airways QM score 92 A$6.56

To often biases and ‘cute’ quotes may often preclude us from seizing on opportunities. The Coal sector is one of them, the other has been travel businesses.

Qantas Airways (ASX:QAN) in particular has seen its price on a tear as it fast approaches pre-covid highs which it looks as if the chart has enough momentum to achieve.

ASX:QAN 1 year daily

The stock has had swings between euphoria and despair over the past two years, though pleasingly it seems to have taken off recently out of the sideways channel which saw price oscillate between $4.20 and $5.75..

ASX:QAN 2 year weekly chart

The break out in October 2022, subsequent saw the top of the channel resistance line tested a number of times creating the platform for the run we have seen to date creating a new series of short-term higher highs.

With price now above the ATR, OBV rising supporting the broader price improvement and the 50/200 MA widening, the chart of QAN reminds us why when looking at charts we need to leave our biases at the door. Especially when we talk about a sector in high demand at the minutes and where prices return good margins.

ASX:SOL Washington H Soul Pattinson and Co. QM Score 96. A$28.79

Another stock that finished the week at 52 week hughes was Washington H Soul Pattinson and (ASX:SOL). The investment conglomerate recovering after a topsy turver 2022, and on Fridaty seeing its price break up above a previous lower high.

ASX:SOL 1 year chart

Beyond the breaking of resistance (just), the ATR is positive, the 50 day EMA is above the 200 and is headed in the right direction and the recent run up is supported by an improving OBV and the recent breakthrough resistance has been supported by a succession of higher lows.

Should it be able to make this recent break stick, then this is a good set up from SOL with a potential next target level of $32.60.

Any suggestions?

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