Momentum Monday 2nd September 2024

Welcome to Momentum Monday.

Spring has sprung, and this is going to be a short introduction because let's face it. The market remains up. No amount of crystal balling telling us otherwise seems to work, therefore I am not going to start here. Reporting season in Australia has thrown up its regular volatility. You’ve won some, you’ve lost some. There is no need to get emotional about it. Just make the right decision for yourself and if you are using Momentum, let the charts decide for you what to do next - and don’t forget those pesky ex-dividend dates (a great problem to have).

Interesting links

• This week on Weekend Watchlist run in conjunction with Shares for Beginners, we discussed A2M (or ATM) A2 Milk. Listen here to the replay

• Don’t forget to “Empower Others”. There is no better time to refer the award winning platform which is Stockopedia than right now. To Learn read more here

• For any external commentary we make to the broader market, follow us on Social Media Facebook Linkedin Instagram or X (formerly Twitter) Some of you All ready have so ‘Thank You’ for that.

This week’s content is as follows:

• Broader market sentiment

• Member corner

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

• Momentum Movers (both weekly and monthly - there is more info so please read the introduction)

• 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.

---

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

I know last week perhaps was not as important or headline grabbing as the previous week, but astute traders would have noticed that we closed the session on an all time weekly high (Hint: The Bulls are still running.)

S&P500 Weekly chart

The big news of the week came towards the end with NVIDIA publishing their result. While expectations were that it would meet and beat expectations, the market was factoring in and earnings upgrade to a degree in which it quite get. That is why we saw the DOW go up on Friday to all time new records, whereas the S&P500 and the tech heavy NASDAQ both fell on the day. No matter, for the week we were up. We are close to the end of their quarterly earnings season now with only 7 companies in the S&P500 yet to report. Revenue (~60%) and profit beats (~80%) were relatively the same as last period and for now investors have seen no immediate reaßon to sell off broadly.

And our positive performance was not just for the week. For the month of August we likewise saw a positive return of 2.3% in the broader index, despite the world falling in on our heads on the first and second trading days of the month. A raft of economic data suggested the Fed appear not too late to act and therefore positivity remains. All I really care about is that this was the fourth consecutive up month for the S&P500 and therefore things remain positive.

For example, despite all the tumult in the Middle East, oil finished the month lower on supposedly China economic fears yet on Friday there was new job personal consumption figures out that further confirmed there was no aggressive rate cut needed, as we see the US were not headed for a heavy landing. Who do we believe? There is a narrative there, but we don't have to try to solve the puzzle.

As a result leading into their Labour Day long weekend, markets remained elevated and there is just no price support for the bear case at the moment (note: it will come, just not now.)

Although I did read in a note from Wells Fargo that the last six Presidential election cycles (2 months prior) the broader S&P500 has achieved on average -4.3% (median -1.9%) with smaller caps doing better than larger caps. So perhaps there is something in that? For what it is worth, Defensive sectors do best, whereas IT and Real Estate are the laggards.

As I mentioned last week. If we had another positive week I would lift my ‘watch and act’ level to 5151. So true to word I will do that. Not that the market will be a sell at this point, but it will cause me to look at my general disposition which remains very positive.

AUS S&P/ASX200

It was another up week for the S&P/ASX 200, and though we actually finished down for the month, much of that was caught in trading days 2 and 3 therefore overall it was still a strong month in my view

S&P/ASX200 Weekly chart

Notwithstanding the fact that it is another weekly ll time high, it is important to note that August was a down month. That is because the vast majority of the decline occurred on the second and third trading day of the month. The rest of the month however was quite positive. I note the tone of commentary is still pessimistic, especially for those two days,and of course things may turn bad. But as Momentum investors we wait for the chart to tell us otherwise.

Reporting session was a focus as you would expect and I feel there could be some opportunities out there at the moment as we have seen some significant volatility on the whole dreaded “miss on expectations” when in fact their results were quite good. So I will be looking at all stocks that have fallen, checking what they have to say for themselves, then when I see the price doing the right thing I may very well seize some of those margins. Particularly how aggressive the market is for the moment.

The difference between price maker and price taker has been clear for everyone to see. Again, I will be keeping my eye on these as the right pattern may be worth pursuing in the near term. But obviously stocks like MIN, PLS and anyone involved with Lithium was going to have a tough time. So too everyone else. If you are going to take a long term view on the sector and understand commodities are cycle driven, then now is definitely better buying than 24 months ago.

But as I have said many times before, the health of the Australian consumer is all important to economic activity in our country. And that has been a recurring theme this reporting season, “things were bad, but things are getting better” was enough for large scale money to excuse the recent period and look forward. We saw this initially with JBH and we even wrote about the fact its long running sales streak was over. (You can read that article here.) If you look at all your retail businesses, you will see their views on their outlook. Some of the price retracements will be justified, others like LOV may seem overstated (given the high Quality score.) I won’t jump ahead of the price rebounding first - but I will keep my eye on them. Actually if there is something good about this reporting season it is that some of the big pullbacks have happened on high Quality stocks, perhaps providing a mini-opportunity for those who lamented there was not much Value out there.

The biggest news from a macro perspective that may have hindered the potential gains was July’s CPI which came in at 3.5%. While not a number traditionally relied upon due to it is seasonality, it was outside the RBA’s preferred band of 2% - 3%, and it shows that in our economy, inflation is sticky. Therefore, unlike our friends O/S, we may be a little behind the rate cutting cycle, which for our companies won’t matter so much, but for the consumer - particularly given my comment earlier - the higher for longer phenomenon may hurt. Especially when we look at the Banks this earnings season who in an attempt to improve their Net Interest Margin are actually been looking to cut deposit rates.

Finally I also want to say that the tables are choc-a-bloc as you expect with a market at all time highs. However do note, the Monthly Momentum changes have been recorded and the lists are huge! It my have something to do with reporting season but I will be keeping an eye on it. If the list remains this big next month then I will have no option but to leave it out as the lists are unworkable in the current format.

In terms of levels to watch, I really can’t be more clear that we are AT ALL TIME HIGHS so the sky is the limit. BUT If I was to stretch the relationship a bit, I suppose the close on 1st August may be a level to watch (it has been added to the chart) which would mean we could be setting up for a double top. If that happens then I have a downside target of about where support is for the market which is 7547. So it again remains my watch and act level. Until then I remain aggressive.

---

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, however we will likely not cover a stock within 2 months of when it was last discussed.

If you want to see what has been written about a stock recently, go to the discussion area.

We will not be making up suggestions. If there are no changes to the most viewed list and/or there are no suggestions from members, then no stocks will be covered.

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.

Also look at the market capitalisation and liquidity before making any decisions!

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 support@stockopedia.com.au

IF NO ONE ASKS… HOW AM I SUPPOSED TO KNOW?!?

ASX:WES - Wesfarmers

• StockRank 77

• Momentum Rank 93

• QM Rank 94

• VM Rank 68

• A$72.60

I noticed that Wesfarmers (ASX:WES) made its way onto the most watched list by members. It was last covered from a Momentum perspective back at the start of 2023. Members can read the commentary from 18 months ago here.

ASX:WES 1 year Daily chart

Back then I said, “positive tailwinds are now in place to support a sustained break above resistance” and I mentioned I was going to take a position. I was actually eventually stopped out of that first position but then bought back in and I haven’t sold.

So the question is what price level am I looking at now? If it stays above $66.43 I see no need to sell. If you were considering a position now then obviously it is cheaper today than what it was a week ago. The increased focus by the government on the company was enough to push it over the edge. While the company didn’t quite miss expectations, the growth came from Kmart which was a surprise to thise that don’t shop there. I frequent both Bunnings and Kmart quite a bit for what it is worth and it always seems to be packed. . And if the chart says to stay in, then I am in.

ASX:JIN Jumbo Interactive

• StockRank 86

• Momentum Rank 76

• QM Rank 93

• VM Rank 72

• A$13.80

I noted that Jumbo Interactive (ASX:JIN) was looked at by members last week, though from a Momentum perspective it was last covered in February last year. You can read what was said here

ASX:JIN 1 year Daily chart

Being a while ago all levels are daily irrelevant, though we did point to $13.79 as an appropriate level for a stop loss. From that breach, the chart since then has been messy. The $15 mark has been like a beacon for this stock for some time and I would look to trade this stock in and around that level. Though obviously at the moment it is still in a short-term downward trend (as characterised by the lower highs.)

I probably wouldn't look at it again until at least it crossed back above $15.At that point the price may get above the 200day MA but until then I probably will continue to stay away. If you are brave and are trying to pick a bottom leveraging off the strength of recent jackpots (which is good for their business) then look to have a parachute stop loss from here of $12.02 which coincides with the longer-term lower low of September 2022

ASX:WDS Woodside Limited

• StockRank 89

• Momentum Rank 71

• QM Rank 85

• VM Rank 83

• A$27.19

Often looked at by members is Woodside Energy (ASX:WDS) and their two months is up from a Momentum perspective therefore they are reviewed here. If however, you wish to read the past most recent coverage you can read it here.

ASX:WDS 1 year Daily chart

I have spoken about the fact that this is a good business which is much bigger today than what it was a decade ago. But it is a price taker and therefore its price will be subject to oil price swings and as it hasn’t seen much movement over the time period since it was last covered, neither has WDS’ share price. I said that, “ until the stock crosses above $39, I am just not looking at this business.” That is a level that needs to be breached as historically it has been a strong one. I also said I saw structural support at $20. Likewise there has been no change there. The low of $24.93 created in early August confirmed the pattern of lower highs and lower lows, so if I was feeling aggressive then I would wait until at least a new short-term higher high was created and that would be at $29.52. But ultimately its price trajectory will continue to reflect what is occurring with energy prices. More specifically oil and gas.

Perhaps I can say that for those trading the stock a support level could be found at $25.00. Otherwise carry-on.

---

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

Also look at the market capitalisation and liquidity before making any decisions!

Data is at 31 August and is sorted by the stock code.

Changes from last week

Shine Zone list as at 31 August

---

Momentum Movers

I have actually published an article discussing my thinking with these tables. You can read about it here.

In summary, there is a school of thought that the change in something is just as important as the absolute number itself. Momentum is our most volatile ranking. This section is intended to bring to readers attention the big moves from a Momentum Perspective. As with other lists this is not designed to be a list of stocks that are replicated. Rather it can be a starting point of investigation for further consideration. Initially it will record weekly changes. This will include a monthly change when enough time has elapsed. This section is divided into two lists.

First is a list of stocks that have just crossed above 50 from a Momentum perspective. By definition, these will be stocks that have improved over the past week and month and may warrant further investigation. As a bare minimum a look at liquidity and market cap.

The second list measures all stocks that are currently ranked above 50, have remained above 50 during the time periods analysed (ie not just added or removed) AND whether they have improved or worsened by more than 10 points on the Momentum Rank.

With all filters a minimum market cap of $50 Mil has been included to help ensure investability from a small perspective. Be sure to check liquidity relative to your preferences.

As this is a new list we welcome any feedback you may have. If we have missed anything do let us know.

Data is at 31 August and is sorted by their code.

And remember, past performance is no guarantee of future performance.

Weekly Tables (the past week)

Monthly Tables (from the close of 3 Aug to close of Aug 29) Note: the lists are huge. I am not sure if this is related to the fact Reporting Season occurred , but if next month they remain as big as these, then the lists are unwieldy and therefore there is little to no point producing them.

---

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 31 August and is sorted by the stocks closest to their 52 week intraday high.

Also look at the market capitalisation and liquidity before making any decisions!

And remember, past performance is no guarantee of future performance.

Changes from last week

Stocks within 5% of their 52 week high as at 31 August

---

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