Momentum Monday 24 July

Welcome to Momentum Monday and we are fast approaching reporting season with quite a few company updates last week and more likely to come this week.

To help you manage this busy time of year, w e have produced our reporting season calendar which you can access here or alternatively access it via the post in the Market Insights section here. If you notice a company missing that you are aware of, email us at support@stockopedia.com.au as we have compiled this list manually and cannot guarantee completeness, or accuracy (though we tried our best.)

Further, we are pleased to announce the launch of our “Empower Others” referral program. You can read more about it here

Not only will your friend receive a 10% discount off the Recommended Retail price for the first year, but we reward you with a 30 minute phone call from either Chris or myself should they join. There is even the opportunity to access Stockopedia for free for 3 years. Click on the links above to learn more, and as always… conditions apply.

Let's get into today’s content. For those reading this contribution for the first, refer to previous editions for links to background learning.

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.

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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. 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

The broader S&P500 finished the week in positive territory up 0.69%, and crossed over our target of 4535, but finished just shy of the Mar 27 lower high level

S&P500 Weekly chart

Our new target is now the all-time high of 4766, and momentum is definitely carrying it as the RSI and MACD are showing. In fact the RSI has not been at this level since November 2021 following a 100% rally by the US market from COVID lows. At 69 it is approaching the overbought zone (70-80) therefore a pullback of some sort is due, though in the last bull run following COVID the market maintained and RSI at or above 60 for 15 months so it has the capacity to remain stronger for longer. But a new higher low will have to be set at some point to support the market run and it will have to occur relatively soon (in my view).

So what scenarios can play out from here? (Note: For new readers: I don’t try to predict the future. All I do is call out possible scenarios should a series of events occur. The chart, not my biases, tell me what could happen next. - there is definitely no guarantee any of these scenarios play out as the market is unpredictable.)

• The market keeps running to 4766 which will be a significant level for the index being all time highs. Normally one would expect resistance at this point (and that may occur.) However when looking at the past 20 years, it is clear that following a retrace, when the index get close to all time highs it generally pushes right through it. Look at the index action after a breach of the previous all-time high (denoted by the green arrows). Even the pre-GFC all time high which took years to get back to was dismissed easily. Look at the 20 year chart below.

S&P500 Monthly chart 20 years

Therefore it gets back to that level, there is a very good chance it will smash through it and continue more higher highs. This is the most positive of scenarios (for obvious reasons.)

• Another scenario is the market keeps running to 4766, however it does encounter resistance and is unable to break through. In that scenario, if price breaks below short term support at 4056, then longer term support becomes 3583. Break that an there is a risk a double head and shoulders happen with means the next support area will be around the neck line at around the 2360 range, this will be the worse case scenario and unlikely to occur in one week so there will be plenty of time for us to react. Forewarned is forearmed.

S&P500 Weekly chart

• The final scenario, is the index encounters resistance from here (ie doesn’t hit the top side target.). This would create a Lower High when compared to the all time high of late 2021. From a longer term perspective support remains at 3583, however if it breaches that the next support line is 3267 and the stock will enter a medium to long term downtrend, resulting in our caution levels rising significantly.

S&P500 Weekly chart

Which of these scenarios plays out I have no idea. Hopefully it is the first scenario and not either the second or third. But “hope” is of course not an investment strategy, so just trade the trade.

If you wanted to know my gut feel, I feel quietly confident. Adding to this 'vibe', while not an index we watch, I also note with interest the Dow Jones has seen 10 consecutive up sessions. This is the first time this has happened since 2017, all contributing to the positivity at the minute and supporting a view that we will get to the upside target, and if recent history repeats,  we break through it..

The US Earnings season to date has gone to plan with a number of Financial businesses who traditionally lead the period performing well and adding to general positivity.. However as we have scratched a little further we notice some disappointments with Tesla and Netflix both delivering ok results, but were treated harshly. Remember, this is expected to be the worst earnings season since the COVID impacted 2020 so from a Momentum perspective the balance of ‘hope’ is still on the upside given estimates are low, inflation is coming under control and many think we are now coming to the end of our rate rising cycle.

That said I read a report saying that 75% of companies who have reported thus far have beaten expectations. While this is a positive, it is down from the 80% that is normally the case at this stage. Is this a canary in the coal mine? Markets don’t seem to be worried at the minute - so why should we?.

But it is a great opportunity to leave you with this final reminder, while the US market looks solid making global equities an investing option, it always comes down to specific charts to make your decisions. Hopefully this positivity can continue and eventually convince our own market that it is safe to play. Which is a great lead in to the next section

AUS S&P/ASX200

It was a relatively flat week for our market. Though we still managed to finish in positive territory.

S&P/ASX200 Weekly Chart

So by extension, a flat week means not much has changed from previous views, though this week was interesting because as you can tell by the long wick, we started stronger than we finished. What this means is that for some time we were outside the consolidation triangle, but we were dragged back in. If this week is another positive week, it could be explosive and run quite quickly to our upside target of resistance of 7628. As discussed for many months, this a significant level as we have tested this range three times before.

Stoically we remain above our short term support level of 6995, which is a more positive the longer it does. Here is hoping that some positive momentum from the US rubs off on us in the near term. Though irrespective of US sentiment, continue to look for impeccable setups leading into our reporting season as we are yet to exhibit the enthusiasm our US counterparts are experiencing.

Last week I said that the confession season had been quiet. Well it came to life this week just gone. As always it was a mixed bag with ANN and AZJ disappointing, All miners pointing to the pressures of rising costs. We also saw upgrades from FLT, NXL and even troubled retailer MOZ. While a swallow doesn’t make a summer, it was not unexpected that the focus on stocks that actually upgraded was in Travel and IT. Something to note in the weeks ahead. (Note: Don’t forget our Earnings season calendar accessible above.)

The big macro news this week in Australia was the strong employment figure which has some worried that the bubble will not deflate enough to allow for a pause in rate rises. Of course with much internal reshuffling at the RBA it will be interest to see what they do with rates in two weeks time. I think this is going to remain a central focus leading into the earnings season.

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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 @stockopedia.com.au">support@stockopedia.com.au

ASX:DRR - Deterra Royalties

• StockRank 87

• Momentum Rank 75

• QM Rank 87

• VM Rank 80

• A$4.63

I last spoke of Deterra Royalties (ASX:DRR) back in January. At the time we were hoping for a break above resistance to keep the momentum going, but alas despite getting very close with price bubbling along resistance it failed to sustain the break through and pulled back. Much of that had to do with concerns over Chinese economic growth impacting the price of iron ore and by extension impacting the royalties they can charge.

ASX:DRR 1 yearDaily chart

As a reminder DRR receives royalties from its ownership of the Mining Area C (MAC) and South Flank Iron Ore projects that BHP work. Therefore the price of the company oscillates along with the fortunes of BHP and the Iron Ore price.

In recent commentary following BHP’s operational result, total FY23 production reported at MAC was 126.3 million wet metric tonnes, a 13.7 per cent increase on FY22 production. Much of that growth coming from the South Flank ramp up as previously mentioned.

The company receives an ongoing royalty of 1.232 per cent of Australian dollar on FOB Revenue (Revenue minus COGS) the company will release the final amount on or around the 31 July.

Chart wise, we are back in the middle of our defined trading range which the company will most likely remain in until it has something else to pitch. This is an income vehicle and not really ideal for charts. It has said it is looking for other assets, but to date there has been no indication of any interest. (As an aside…. Imagine if your sole job was to bank a monthly check and you were getting paid 6-figures to do that???… I am envious)

For what it is worth, it needs to get back above $4.95, have a mild pull back and then run again before there is interest from my view. And support is at $4.33. The continued ramp up of the South Flank operations, an improvement in iron ore prices and new asset will help with sentiment. Until then it appears range bound.

ASX:VEA - Viva Energy Group

• StockRank 91

• Momentum Rank 58

• QM Rank 77

• VM Rank 87

• A$3.10

I can’t help but feel that Viva Energy (ASX:VEA) should have been doing better recently.

ASX:VEA Daily chart 1 year

Following the pull back in oil prices (Remember oil is an input cost for refiners. So a lower oil price equals better margins) and problems at Ampol’s Lytton refinery, investors may have hope for a better result from the company.

While volumes were up, a sharp deterioration in Geelong Refinery Margins (circa -45%) impacted the full potential of this period. The company cited higher operating costs due to increased shipping activity to support the major maintenance turnaround and unplanned extended outage of the Platformer and associated units. Replacement of crude oil with additional imports of refined products also impacted margins.

The frustration increases now that we know ALD has resolved their Lytton issue and actually delivered quite solid update across the board.

I last spoke of VEA in April citing the breakout of the 9 month trading range. It looks though that price has come up against resistance at the $3.23 to $3.26 range. So to consider this stock again (I have held it in the past) I would want to see that level breached, and then supported with a mild pull back to then consider another run. Positively the stock would have re-entered to the Shine Zone this week had the QM Rank been above 80 (Currently 77). For the stock to show signs of a good set up the next low must be above $2.90, at least it has created a new very short term higher high which any eventual uptrend needs..

For those holding the stock, a trader would look at $2.90 for a stop. An investor $2.50. Hopefully these issues are temporary and following the poor update I noted the price has rebounded given non-insiders hope that these issues may be behind. Any significant improvement in margins will go straight to the bottom line.

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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.

Read the “how to” article above to learn more

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

Changes from last week

Shine Zone list as at 21 July

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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. 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 the Stockopedia and the chart first.

Data is at 21 July 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 July 21, 2023

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