Momentum Monday 25th September

Welcome to Momentum Monday.

Warmer weather, sport over the weekend, or school holidays…. Whatever it is that is diverting your attention from the sharemarket will be a great relief. The market is frustrating, its choppy and it has no idea what it wants to do. The amount of negative press I am reading all of a sudden can’t help but feel like an attempt to stoke the fire. We have to try to block out that noise and remember in sideways markets “less is more” . (Though in my case all my sporting teams lost so I am bereft of relief at the minute!)

Surely we can’t be the only ones frustrated with the market at the minute. I bet your friends will also be likely look for guidance and we can help. Remember our “Empower Others” program, were there is a welcome discount for your friend and gift for you. Read more here.

On a final note, today I will be presenting at the Australian Investors Association conference. If you can’t be there in person, there are virtual tickets to the event. There is a charge ( $149 +GST for two days). You can claim your virtual ticket here https://grafa.com/channel/investx-2023 . To learn more about the event itself visit this website https://www.investors.asn.au/events/

Last week we introduced a new section. So the content for this week will be 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.

---

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 third consecutive down week for the S&P500 was not investors would have been hoping for. Especially a 2.9% pullback - its largest since March.

S&P500 Weekly chart

While 4124 still holds. But as we are Australians (in the majority) and we generally have a negative disposition when it comes to shares… last week I mentioned that a failure to hold 4535 could see the index pull-back to circa 4180. As we broke below that last week, it looks like some choppiness is ahead. Though hopefully we can stay above short-term support

Some of the long-term market indicators like RSI is right on 50 (Remember +50 means an upward trend) and the MACD unfortunately has some negative bars on the histogram as the moving average lines move wider apart (in the wrong direction).

While not a cause for concern it tells you the market is wary and therefore so should you be with your stock selection,

The big macro news that moved US markets (and global markets) were the hawkish statements from the Federal Reserve, who despite leaving rates on hold for the time being, made it abundantly clear that another rate rise was coming. This created a number of ripple effects.

10 year Treasury bond yields continued to rise to their highest levels since 2007 touching 4.8%. Likewise 5 year and 30 year bond rates rose. This means the cost of funding has risen and has impacted sentiment on the market.

Further, the better rates mean Gold has fallen from April highs above US$2055oz to be below US$1950oz. This has been reflected in the AUD/USD that since April has fallen from above US$0.665 to US$0.64. (Remember, when the US dollar strengthens, gold price generally tends to fall)

Treasury yields moved aggressively after the release of U.S. unemployment data that showed unemployment claims came in less than expected (at its lowest level since January) and therefore the market shortened the odds of another rate rise as inflation concerns linger.

Just to add to the generally cheery disposition (Note: I am being sarcastic!) news started to emerge that the government shutdown pantomime may be about to recommence in earnest.

Therefore, with all the above factors combined, traders decided that it was time to take a breath and that is most likely why the market took a tumble last week.

A few weeks back I also mentioned the “Summer of Strikes” in the US. The one being most keenly watched at the moment is the United Auto Workers (UAW) strike. Its ramifications are enough for both the President Joe Biden, and leading Republican candidate Donald Trump to make an appearance. While their motives are obvious, it does highlight the focus being put on the issue. Though from an investment perspective both Ford and GM only make up about 0.25% of the S&P500 combined.

There is also interest news afoot in the oil space. Last week oil had its first decline inthree, however there are a few things at play here. The big one is the news over the weekend that Russia will place a ban on exports of gasoline and diesel to most countries. This will likely further tighten global supplies ahead of a Northern hemisphere winter. So why did the price fall? Most likely because refineries in the US will likely be conducting maintenance work after the peak summer period where production is upped to meet the driving period. Crude oil is an input for a refiner. So less refining, less oil demand. All the above aside, Oil had been on track to hit US$100 per barrel following months of OPEN+ production decline. One suspects that the Russian move makes it an inevitability so keep an eye oil stocks with the right setups.

Is there any positive news? Well, I believe we are closer to the end of the rate rising cycle than the beginning (especially in the Eurozone/UK) therefore hopefully I might get a chance to write about something else over the coming months?

Final thought, the market will do what it does, so always watch what is going on.

AUS S&P/ASX200

Are we at our wits end yet? Momentum traders irrespective of how they like to roll, like clear directions. Clear up trends to be in, clear down trends to be out. But sideways markets are frustrating. The 2.9% pullback in the S&P/ASX200 last week, was on top of the big swings experienced for the past three, and unfortunately we are no clearer to knowing a specific direction as of yet.

S&P/ASX Weekly chart

We clapped and cheered at the close on Friday when our market fell 1.5% on the open, but managed to slowly claw its way back to a win, finishing just in front. Though any merriment was tempered somewhat when compared to the weekly performance. Further the mood darkened when we thought about reaching our lowest weekly close since July and our lowest intra-week low since March! But at least we won something right?

The index is still above the range of the 6995 to 7038 short-term support range. So technically nothing has changed right? Certainly feels like it. I have made a change to the weekly chart when I have moved the top of the triangle to go through the highs of July, because quite simply the triangle ran out of room. However the bottom line didn’t change, and with Friday’s weak open we really need the market to hold its own on Monday, lest a test of 6995 occurs. Friday’s weak close in the US doesn’t instill confidence I am afraid.

Looking at the daily chart for some possible guide as to where to from here, and we can see two distinct points:

S&P/ASX Daily chart

1. The low on Friday took us well and truly into the short term zone of support. Two scenarios can happen from here. For the positive side the index will hold and therefore support has held which could be taken as a bullish symbol when combined with how the market closed on Friday

2. For the first time since March we have started to see the 200d ma start to take a downward lean. While in of itself is does not signify a clear direction of trend, it further emphasises the frustrating period we have seen for the broader equity market

Given the weak week, it is unsurprising that more removals than inclusions were included in the data tables, below. But there are still stocks trading at close to 52 week highs, so all is not lost yet. There are still pockets for Momentum investors to search for opportunities, if they are diligent.

On the macro front globally there was not much economic data. Our trade surplus doesn’t change the current narrative. The main focus remained on what was occurring in the US and the 11 other central banks that released policy decisions last week. Unfortunately I said last week that positive sentiment would come during the week on the back of solid economic data on the domestic front. Alas, all that good work was undone by the developments in the world’s largest economy, and then there is the issue with our largest trading partner.

Notwithstanding that Iron Ore prices have stabilised on the back of the Chinese government assuring the market it has “got this” - it would be premature to suggest that problems with the world’s second largest economy are behind it. Troubled property developed Evergrande fell 25% in a day as staff from the Wealth Management arm were arrested. Further Country Garden has had a third debt payment extended for 30 days as it struggles against default and what would be an inevitable default. While the Chinese government will likely support participants - it is not a good look from China’s sixth largest property developer.

So for the minute while there is no need to change broader investment strategies, investors will approach this and the ensuing weeks with caution. But then again, when has that been different over the last 12 months? Surely we must all be getting used to that by now?

---

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.

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.

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:QAN Qantas

• StockRank 98

• Momentum Rank 91

• QM Rank 94

• VM Rank 98

• A$5.31

No stock commanded more attention over the airwaves this week than Qantas Airways (ASX:QAN) therefore it was unsurprising to see it asked about.

ASX:QAN 1 year Daily chart

We last spoke about QAN in January when it broke out of a long sideways channel and started the next leg up. That leg eventually took it to $6.80. Since hitting that peak, price for a while bubbled along, testing resistance no less than 4 times. This indicates almost a wall of steel.

Subsequent to that a new lower high resistance level was set between June and July which failed both times and now has broken structural support at $6.00 and the rest is history. Its a good case study of how supply and resistance lines work.

QAN is a high quality company who has done very well on the back of consumers insatiable need to defy cost of living pressures and get on a plane. One would argue this has been as "good as it gets" for QAN with increased competition, capacity and  costs expected to bite, therefore a retraction in price was inevitable. However, the PR and Government machine has sped this process up somewhat.

There may be some tempted to take a nibble given the solid numbers after the latest report and the fact the company has returned to terra firma and has a very loyal customer base (irrespective of what you read in the press). So from a momentum level where may those prices be?

First I will just say as a rule…. Try not to catch falling daggers, therefore don’t use these levels as the point to jump in because they could quite easily fail. Rather look at them at points where possible support may be found. If it eventuates, then you can assess the validity of a possible position at that point.

ASX:QAN 1 year Daily chart

So my first level to watch is not too far from Friday’s close and that is around the $5.19 mark. That would equate to the inverse of what the price dropped from Resistance to the neck line.

If price cannot hold that level then my second target area will be around $4.26 which equates to the structural support levels of 2021 and 2022.

If price cannot hold that range then target area (not on the chart above) becomes COVID lows in the two’s.

Long story short, the company has a lot of work to do (much of that in the media one suspects). However, for those cavalier enough to take a position around these levels, “at least you won’t have to wait long to know if you are wrong.” Just be sure to have your parachute stop in place.

---

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 23 September and is sorted by the stock code.

Changes from last week

Shine Zone list as at 23 September

---

“Bus pulling out of the station” *New Section*

This section was introduced last week.

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 23 September and is sorted by the stock code.

Changes from last week

“Pulling out of the station” list on 23 September

---

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 23 September 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 September 23, 2023

---

Important Information: Stockopedia Ltd ABN 39 757 874 670 UK business registration number 0637267 (“Stockopedia”) is an Authorised Representative of Daylight Financial Group Pty Ltd ABN 77 633 984 773 (“DFGPL”) which is the holder of an Australian Financial Services Licence (AFS Licence No. 521404).

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