Momentum Monday 3 July

Welcome to Momentum Monday and welcome to the New Financial Year. A big *HELLO!!!* to all of you who have joined us recently over the EOFY period. As you may have gleaned by now, Stockopedia is the tool for the use by the conscientious investor.

We firmly believe how you want to invest is not for anyone to make a judgement. Helping you invest your way is what we at Stockopedia are put on this earth to do.

This weekly contribution that we call Momentum Monday is obviously targeted more towards the Momentum Investors. Something that I myself would call now days. In fact I combine the factors of Quality (part of my original learning) and Momentum (that I took up following the departure from my previous employer.) This may come as surprise to some of you who may have known my in a past life, though for the benefit of everyone, I documented my Momentum Journey in the following three articles:

Episode 1

Episode 2

Episode 3

I shared these articles not as a means of showboating, rather they form the basis of how I view the Momentum world. For those of you very familiar with Technical Analysis, many of these concepts will no doubt resonate as they are gleaned from the teachings of the most respected chartists out there (both Local and International) and to be honest, they are quite simple.

But that is enough from me now, let’s get into this week’s content.

Before we do, just a reminder of our 2 minute market wrap I share with ABC Melbourne each day between 4:30pm and 4:45pm that we make available on our social channels. Here are the links to the respective pages:

Facebook: https://www.facebook.com/StockopediaANZ/

Twitter: https://twitter.com/Elio_DAmato

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

In the US it was the end of their second qtr and the positive trend, that we have been witnessing there as bee\ig continuing with a particularly strong close on Friday and the S&P500 rising over 2% for the week..

S&P500 Weekly chart

As we shared last week, 4056 is our very short term support level and the upside target remains 4543. Though don’t get too hung up on those specific levels. Last week was the first down week in 7 and was hardly that significant, meaning that the market will need to catch its breath at some point. This will be normal. But again as shared over the past few weeks, we remain comfortable buying global equities.

For June: the S&P500 gained 6.5%. For the Second Qtr the S&P500 rose 8.3% for a third straight quarter. It is its biggest quarterly advance since the fourth quarter of 2021. The first half of the year the S&P500 popped 15.9% for its best first half since 2019.

As impressive as those numbers are, the NASDAQ has been the real big story on US shores.

The Nasdaq surged 31.7% for the first 6 months of the year making it the best first half since 1983.

NDX:Nasdaq100

One suspects that any pullback in the broader market will come from profit taking here, but again - that shouldn’t be a time to panic - though if you have made gains there is nothing wrong with having a stop loss to protect them..

There is not much more to add at this point. History will tell us that the first half of the US trading year was a strong one, notwithstanding all the challenges of inflation, debt ceilings and rising rates. Further evidence that sentiment is a strong beast and when the Bulls are running it is compelling to watch.

AUS S&P/ASX200

We finished off what was by the numbers a positive financial year with a weekly win.

Here is a table of how we finished

It was also unsurprising that IT was our best sector for the year, given the lead for the US as discussed above.

Of course, for those of you reading this contribution regularly you will appreciate that this gain was more illusionary as back in June last year we were at the first bottom of our sideways channel and at the end of this June we are closer to the top.

S&P/ASX200 Weekly Chart

I wish there was more to discuss for newer members about the S&P200, however the chart shows it all. All indicators such as the MACD and RSI are flat lining. This despite CPI coming in well below expectations and allowing many to breath a sigh of relief. Maybe there will be respite on the rate rising cycle? However despite the positive week just had, we are still below where we were two weeks ago. That is why I find the weekly charts useful - they give me perspective.

So given that perspective is not particularly clear now, let’s look at the daily chart of the index to see what is happening below the surface. Unfortunately it is messy and doesn’t provide much more guidance that we had been receiving previously.

S&P/ASX200 Daily Chart

What is a little concerning (though NOT alarming) is the very short term Lower Highs that have formed in early February. We see further confirmation of the sideways move with the two moving averages of 50d and 200d come together and ATR flip flopping around price.

Some may argue that the triangle shape may form a catalyst for a move either way, though I feel that would be too pre-emptive. Short-term support remains at 6995, and the bottom support of 6474 will hopefully not be tested.

One of things I enjoy when we get new clients onboard is that I get a chance to say something that I have repeated for many weeks, that I can share frsh again. And that is that, “less is more in this market.” You can trade stocks at the minute, but look for impeccable set-ups and keep your stops in place.

Otherwise enjoy the skiing! Bring on July! Figures crossed some of that positive US Momentum rubs off on us…. Because you know what will happen if they go the other way…

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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:XRF XRF Scientific

• StockRank 83

• Momentum Rank 98

• QM Rank 98

• VM Rank 73

• A$1.17

XRF Scientific (ASX:XRF) is a manufacturer of equipment and chemicals, which are distributed to production mines, construction material companies and commercial analytical laboratories, in Australia and overseas. XRF’s technology is used to measure the composition and purity of materials and is mainly applied in industrial quality control and in process control for manufacturing processes in industries such as metals and mining, construction materials, chemicals and petrochemicals.

It is a stock that has done very well in and amongst the current mining activity and infrastructure booms and the market has acknowledged that with strong performance for the year.

ASX:XRF Daily chart 1 year

If you have been in the stock for the run up, congratulations. And with a strong Quality rank there is an argument to remain exposed if you are a long term fundamental investor. However from a chart perspective you will see the chart has turned over. All the gains in that rapid April purchase period are very close to gone. Hence why $1.13 has become the stop loss level as that was the highest low formed in May.

You will notice the price bounced from that level, however it was not enough to surpass the previous high. So with a new Lower High in place and a new Lower Low in June, XRF is in a short term downtrend.

If you were not holding , I would want to see price climb over $1.34 before then looking for an appropriate entry level.

If you have been holding then I would be on an exit footing. As talked about stocks zig and zag. Therefore if the price continues its mini bounce and gets to $1.22 - $1.25 that would be an elegant exit. If it falls back to $1.07 that would be all bets off.

And don’t worry if it keeps running after $1.25. You could always get back in. And like I say, above $1.34, wait for the retrace , and then consider an entry will mean you will possibly miss out on only a few cents, versus a fall to $0.95 and stress.

Despite its obvious quality, we need to respect that it has entered a downward movement. Therefore how you play this will depend on your reasons for buying it in the first place.

ASX:AKE Allkem

• StockRank 87

• Momentum Rank 80

• QM Rank 87

• VM Rank 83

• A$16.02

I have talked about Allkem (ASX:AKE) a number of times in the past. The last time was in Momentum Monday on 30 January. At the time we said, “a break of $14 39 will likely see a retest of the all-time high of $16.72.” And here we are today.

ASX:AKE Daily chart 1 year

The South American Lithium producer has seen a leap in its price from Early May and momentum is on its side.

To be fair after we mentioned that in January the price fell away. We actually said a stop loss around $10.90 might be appropriate, and it got into the $9’s. However the subsequent rebound, series of new high highs and lows saw the stock eventually gap up in May and that now becomes a significant level to watch.

In technical analysis there is a belief that most gaps get filled in time. In the case of AKE the gap between $13.18 and $14.20 could act like a magnet to price. It would not be uncommon for the price to retrace back to $13.18 which could be a good buying opportunity as hopefully that will prove to be support.

The other alternative is that the price breaks above resistance at $16.72, at which point you would wait for a retrace and then consider a position. That retrace level would be above the range of $14.30 - $14.46. This could be higher if the price runs more. Be patient if you see it run ahead. It always takes a breath so there will be a chance to buy cheaper.

As you can tell by this response, I don't use Technical Analysis to predict the future. Rather I use it to tell me what is going on right now and what levels I shuld be watching. I can then act accordingly.

ASX:ALL Aristocrat Leisure

• StockRank 82

• Momentum Rank 89

• QM Rank 97

• VM Rank 65

• A$38.66

We last spoke of Aristocrat Leisure (ASX:ALL) at the end of May and talked of the bullish look to the chart and that still remains.

ASX:ALL Daily chart 1 year

The price may be below the ATR at the moment, however we have seen a number of higher highs and higher lows since the start of the calendar year so the view in the short term remains positive.

At the time of my last comment I said, “For investors considering the stock now a stop loss of $33.70 would still be appropriate. Traders would look at the current support level at $37.83” The only difference to this narrative now is that traders would look to $37.18 which was an intra-week low (that if you blinked you would have missed).

But traders should note that for all intents and purposes, the stock has gone sideways since April, therefore any breakout of the range could be significant.

ASX:BXB Brambles

• StockRank 89

• Momentum Rank 99

• QM Rank 99

• VM Rank 78

• A$14.41

The chart of Brambles (ASX:BXB) does not require much coverage, as it speaks for itself.

ASX:BXB Daily chart 1 year

We last covered BXB in late February. At the time the price was retesting resistance. Once it broke through the price pulled back and then rebounded. Even in the sell off late May, price held the previous resistance level which then becomes support.

Should the price hit $14.91, we are at all time highs. That is a good place to be (much preferred than all time lows).

For new and recent investors the stop loss is $13.16.

ASX:JHX James Hardie Industries

• StockRank 81

• Momentum Rank 99

• QM Rank 97

• VM Rank 70

• A$39.75

I last spoke of James Hardie Industries (ASX:JHX) in early February and since then there has been a change in fortunes.

At the time I wrote, “If the stock can hold the low of Friday (10/2) and bounce back up above the recent mini-high of $34.50, that increases the chances of a run to break $36.73.” And here we are.

A new higher high recently saw it trading at 52 week highs and momentum has definitely improved since the start of 2023.

At some point there will need to be a pullback (in order to create a new higher low). On the chart I feel for as long as price holds $34.59 we should be fine.

Sentiment has improved in 2023 for construction materials businesses as the insatiable demand for new buildings means that has strong control over margins of the products they sell. That is expected to continue in the near term.

ASX:REH Reece

• StockRank 81

• Momentum Rank 89

• QM Rank 97

• VM Rank 65

• A$18.57

To that end, plumbing supplier business Reece (ASX:REH) has seen a similar path to recent fortune as the price has seen strong support since the start of 2023 for all the same reasons JHX.

ASX:REH Daily chart 1 year

The stock is currently pulling back from its recent 52 week high, which means between now and $15.81 would be a good potential zone to consider a position ($15.81 is support and appropriate level to have a stop.)

For those who haven’t held the stock but want to see a sign of life, a break above $19.00 would help convince me it can break above the recent high.

Interesting to see the charts of both REH and JHX since 2005 have been similar in shape showing the correlation of both and how they are each linked to the industry

REH vs JHX since 2005

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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 and identifying good setups. 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.

Read the “how to” article above to learn more

Data is at 30 June and is sorted by the stock code.

Changes from last week

Shine Zone list as at 30 June

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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 30 June 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 June 30, 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.

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The author holds interests in stocks highlighted specifically in the article: ALL, BXB and other companies listed in the data tables . This position can and will change at any time without notice.