Momentum Monday 23 October

Welcome to Momentum Monday.

Choppy!

Markets are at a precipice.. Which way will they go? Don’t worry. Just play the cards you are dealt with.

Don’t forget our collaboration with Share for Beginners. The “Weekend Watchlist”. Bookmark this page to keep up to date with what we are talking about or follow Shares for Beginners on your favourite podcast channel.

This week’s content is as follows:

• Broader market sentiment

• Member corner

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

• 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

As we are adding more to the Member Corner this section will be made shorter to compensate. There will be less macro talk as that is available at other sources. We will limit discussions to chart moves only. Feedback is welcomed.

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

US markets retreated this week, not just eroding the gains of the past two, but closing at the lows.

S&P500 Weekly chart

I mentioned last week that no one was believing the rally of the prior fortnight and that distrust manifested this week.. The 2.4% fall for the week resulted in the RSI falling below 50 and MACD continues to reverse.

Notwithstanding the bearish sentiment, the short-term levels of 4180 and more importantly 4124 remain for now. To be frank, if:

- we didn’t have the noise of 5% yields on 10 year US Treasury bonds

- we didn't have the conflict in the middle east

- we didn’t have oil prices on the rebound

- we had a speaker in the house

- and if we didn’t have a hawkish Fed….

Then the recent pullback could be argued to be orderly… though that is not what it looks like on the packaging does it? Even the VIX index, (otherwise known as the fear gauge), which has risen once again to levels not seen since March 2023. Though this has been proven time again to not be 100% right.

Tech stocks have led the pullback which is unsurprising as they drove the previous rally, Nvidia for example having its worst week in over a year as reports surfaced that the US Department of Commerce plans to tighten restrictions on sales of advanced artificial intelligence chips to China.

It is quarterly reporting season in the US and while it is still early days, we remain within our usual expectation that 70%-80% of companies beat analyst expectations. However we only have a limited data set for the minute as we look for when the majority start to report. It's the busiest week for reports next week in the US, including Alphabet (Google), Microsoft and Amazon. We will get more of an understanding on how the economy is going then.

We remain in equities globally, but we continue to watch developments in the world’s largest economy.

AUS S&P/ASX200

The 2.1% loss in the ASX200 last week, was enough for the index to close below the 6995 short-term level we have been watching and therefore a new short term lower low has been created.

S&P/ASX200 Weekly chart

While there is no need to panic yet, what this likely means is that the support level of 6474 now comes into play again, a range we tested 12 months ago.

We are still in stocks, and it is important that we do not catastrophize something before it happens. We are still going sideways and have been for over two years now. Therefore if we had our noise cancelling headphones on, who would know anything was different than  market behaving normally? But let’s not be too frivolous either. Look for the right setups and pockets of outperformance. They are still there and for Momentum investors who don’t really care who it is, as long as it is headed in a general north-easterly direction, then that is where they want to be.

Looking at Gold stocks for example. They have had a good run on the back of the gold price doing so well and currency moving in their favour.

The combined factors has meant that we are at all-time high gold prices of just under $3150. Not bad for a commodity that was first discovered in Australia in 1851, when Edward Hargraves used the then new techniques of panning and cradling he had picked up in California to first find gold just outside of Orange.

Gold price in AUD 5 year weekly chart

My final thought on the current market is, err on the side of caution if you feel uncomfortable and you want to preserve capital. Remember having stop losses is like paying a premium to take out insurance, and I am yet to find a human alive that is glad that they got to claim on their life insurance.

But most of all - be patient. Don’t rush trades now. If you miss the occasional pop don’t beat yourself up about it. They will happen. Remember the reason why I embarked on my momentum journey was to protect my capital. Therefore be ruthless in your expectations. If your stock is not headed north-east, or at least stable, ask yourself the hard question.

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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.

We welcome stock requests to be analysed from members. We will also be looking at the charts of some of the more actively researched stocks for the week. We will try to rotate through a selection so as to not make the charts stale. Hence why we welcome member suggestions to keep our list fresh. We will not be making up suggestions. If there are no changes to the most viewed list and/or there are no suggestions, then no stocks will be covered.

Also please note, that while we may receive a number more queries than can be covered, therefore 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.

And again, 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: DUG DUG Technology

• StockRank 86

• Momentum Rank 97

• QM Rank 95

• VM Rank 81

• A$1.84

I last spoke of DUG Technology (ASX:DUG) in August from a momentum perspective. Chris discussed them more recently last month. You can read that contribution here.

ASX:DUG 1 year Daily chart

On the momentum post I mentioned the obvious strength in price. But I mentioned that it would be better possible buying at the $1.30 - $1.35 area. Subsequently the price got down to $1.41, but such is the strength of this uptrend, it stabilised and kept moving up.

Closely aligned with the digitisation of everything, DUG has experienced strong support in its price, even amongst the current tumult. There is not much more for me to discuss, other than the series of higher highs and higher lows continues, and therefore it is in an uptrend.

If you have missed the boat up until now, a break above $1.92 may provide the confidence you need that the trend can continue.

If you have ridden it all the way up, short term structural support is at $1.73 or 10% from current levels. The proper structural support is at $1.46, but that size of drawdown may not be appropriate for many.

ASX:FMG Fortescue Metals

• StockRank 98

• Momentum Rank 93

• QM Rank 96

• VM Rank 98

• A$21.39

Iron Ore saw a bit of a lift this week, and the AUD fell, so it would normally be good for Fortescue Metals (ASX:FMG), though its price has been caught up in the rest of the market pessimism.

ASX:FMG 1 year Daily chart

2023 has been a sideways movement for the Iron Ore play. There is a clear resistance range at $22.95 - $23.68 . Support is at $18.90. If it fails to hold that level, $15.95 comes into play. Whereas if it breaks resistance the next possible target could be $26.50.

ASX:FMG 5 year Weekly chart

However I see no need to rush this trade until there is a clear direction (either way) given the current market we are in at the moment.

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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.

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

Data is at 21 October and is sorted by the stock code.

Changes from last week

Shine Zone list as at 21 October

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“Bus pulling out of the station”

This section was introduced recently.

To learn more about this screen read the following article on the objective of the screen

Please let us know any feedback

Data is at 21 October and is sorted by the stock code.

Changes from last week

“Pulling out of the station” on 21 October

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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 21 October 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 October 21, 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.

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 DUG and interests in companies listed in the data tables . This position can and will change at any time without notice.