Momentum Monday 30 October

Welcome to Momentum Monday.

Odds of a rate rise in Australia on Melbourne Cup day have increased. The odds aren’t improving that much for our US Friends either. The world is  on edge of a major regional conflict in the middle east... Welcome to the market behaving normally.

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)

Remember our Weekend Watchlist edition. This week I talked about Atturra (ATA) . Access the recording here. And if you bookmark the page you can just go there on a Saturday and see who is being discussed.

A special call out for our “Empower Others”” program. Please don’t forget it. The offer goes both ways to you and your friend so be sure to visit this page to learn more. And remember… you need to tell us you referred someone. Otherwise we’ll miss it.

Also you may have noticed, but a reminder, that the recent blogs area has changed its appearance on the home screen. We can now fit more articles on the front screen to make it easier to access . A full list of our commentary can still be found under Discuss >> Market Insights.

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

Not a great week for US Markets. Reporting season has thus far failed to excite with stock-standard reporting and the ‘good news’ is ‘bad news’ phenomenon of US GDP Growth at 4.9% has many worried rates could rise next week.

S&P500 Weekly chart

Another 2.5% fall for the week took us through the short term levels of 4180 and more importantly 4124. Though that said, at 4117.4, I wouldn’t say it is convincing at this point. I would probably say, “we are right on support’.

As mentioned last week, the broader noise on the market is more concerning than the chart itself. However, we can’t ignore it, and if the index cannot rebound significantly from these levels, then 3835 comes into play. That was the previous higher low level and it would not be a good look if we breach that.

Fingers crossed a well behaved Fed, easing 10 year Treasury yields and continued declining oil price will continue.  Though over the weekend with tensions rising around the middle east region, perhaps it is a fool's hope. All these will help sentiment (and we sure know it needs some help for the moment.)

Reports are that earnings beats are around 76% this earnings season thus far (we are about half way through companies on the S&P500 reporting), an interesting thing to note is that revenue beats are at 60% - below the average of 69% according to LSEG (formally Refinitiv). Will this help the Fed keep rates where they are? We will learn this week.

It has also been a bit of a shock to see the profit taking in Alphabet (Google) this week. Though not disastrous, as the price is now back to where it was in late July. Even the disappointments of Ford and GM were somewhat expected given the prolonged auto workers union strike. Hopefully sanity can prevail. Though as the saying goes…

“Markets can remain irrational longer than you can remain solvent.”

As has been the case for a number of weeks, we remain in equities globally, but we accept that the tone from the world’s largest economy is becoming more baritone by the week, and therefore we remain on high alert.

AUS S&P/ASX200

Another down week for our market falling 1.1% following last week’s short-term lower low, we’ve now ended five of the past six weeks in the red

S&P/ASX200 Weekly chart

Last week we discussed the breach below the 6995 short-term level, and how the support level of 6474 comes into play. So it remains.

Inflation is the big thing of concern at the moment. The slightly hot CPI figure of 1.1% for the quarter or 5.4% for the year is being driven by domestic factors (rather than external as the Government may have you believe) and there was much talk of a possible rate rise on Melbourne Cup Day (7th November).

Gold continues to trade at record prices in AUD terms as the price of gold crossed US$2000 p/oz for the first time since May. Even though the AUS/USD stabilised for the week, overall it has never been as good from a sales perspective from Australian Gold Miners (this excludes those producing Gold overseas.) So if you are in Aussie gold miners, make sure they are drilling strong!

Back to stocks, and it has been quite stark to see the reduction in the numbers in the shine zone (stocks where the chart setup looks reasonable) and stocks trading at 52 week highs. While in of itself nothing should be gleaned from it, it does tell us that the market is more risk averse at the minute. Keep your market ears open.

Some members may also be asking, “why have there been more stocks pulling out of the station over the past two weeks when the market has been going down?” The reason is because the way the screen is built. Remember the screen is looking for stocks that over the month have gone up, but over the last three have gone down. Much of the pullback in small caps has already occurred, and therefore for the last month their price has stabilised at these lower levels. The time you will get the least amount of stocks is when the market is trending strongly up or strongly down. That is because you will likely see no divergence as the 1 and 3 months figures heading in the same direction.

Not much else to add at this point other than trade good looking setups and avoid bad ones, as tempting as they may be (eg Resmed.). So I am going to republish what I wrote last week as these points are particularly pertinent at the minute…

“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 it is not headed north-east, or at least stable, ask yourself the hard question.”

The only thing I will add, is if you do sell a stock and you like the business, put it on a watchlist and keep an eye on it. You need to be in the market more than you are out. So if you get rid of a stock because of the trend, then you will need to get back in when the trend says you should.  This will likely not occur this week... but you never know!

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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: NHC New Hope Corporation

• StockRank 99

• Momentum Rank 88

• QM Rank 98

• VM Rank 99

• A$6.04

One of the most viewed stocks within the platform was New Hope (ASX:NHC). I last spoke of it in February from a momentum perspective. At the time I mentioned that the price needed to stay above $5.16, which it failed to do and fell to an eventual low of $4.54 at the end of May.

ASX:NHC 1 year Daily chart

Since then however, the price has recovered nicely forming a series of short-term higher highs and higher lows. Further the company delivered a result in line with expectations ( a rarity in the mining sector at the minute) and the gap on the 23rd was simply the stock going ex-div so I'm not too concerned.

The other pleasing thing about this recent move is that it has lifted the stock out of the recent down trend that started from the peak in October 2022. You then saw a series of lower highs and lower lows (the blue channel). But the downtrend has been broken in September (after testing resistance in June and August this year).

ASX:NHC 2 year Daily chart

This previous resistance level has now proven to be support, as it has been tested a number of times, and therefore the price of NHC looks like a good set-up right now.

A traders stop loss from here would likely be $5.87. A more medium term investor who likes the business could be more forgiving at $5.23. Which you choose is up to you. But have one!

ASX:LTR Liontown Resources

• StockRank 21

• Momentum Rank 44

• QM Rank 27

• VM Rank 15

• A$1.69

Many must be asking are people good strategic thinkers or are they just lucky? Many are wondering why Gina Reinhart felt it appropriate to acquire 19.9% of Liontown Resources (ASX:LTR) to only then scuttle the deal and experience a big loss?

ASX:LTR 1 year Daily chart

I am not going to discuss the merits of such a strategic play, but before I discuss the chart, I want to make clear that when takeovers or massive corporate actions are taking place, using charts is not really the best use of your time. Big issues relating to a business (either positive / negative) move the price through the facts, not sentiment. Therefore, I find charts to be more useful when the business is behaving ‘normally’.

Take LTR as an example. Before the Albemarle bid in late March, there was no breakthrough of resistance before to give any indication this may happen. Further when the bid was pulled two weeks ago, sure the price had come off its 52 week high, but there was no breach of structural support.

Further there is an idea that gaps get filled. However really this doesn’t apply to when a stock is getting taken over. But in this instance the gap from May is at risk of being filled on account of the bid failing. Further for the company to fill the gap created by Albemarle walking away, there really needs to be another $6B bid. Takers, anyone?

LTR reminds us of the risk of buying into big and holding based on big events. The market chatter is now to stay away from anything Gina Reinhart wants to get involved in. For shareholders of LTR it is too late. If it is any consolation, the price is now right on support which was created by the previous resistance in January and March 2023. If it breaches this support at $1.66 then the next downside target becomes $1.23. So if you are going to try to catch a falling knife, do so with caution and stops in place.

ASX:MIN Mineral Resources

• StockRank 77

• Momentum Rank 68

• QM Rank 84

• VM Rank 65

• A$60.39

Mineral Resources (ASX:MIN) is in a well established downtrend. For those using momentum, bounces in the price in recent times have been points of potential exit.

ASX:MIN 1 year Daily chart

Before I talk about the chart, like PLS discussed recently, I too hold MIN from a very long-time ago and therefore I am not so concerned by recent moves as much of it is driven by Lithium prices rather than anything structural about the business. I therefore do not use charts on my MIN holding and rely on Fundamental factors..

The chart for MIN looks in pain. Since the price breached structural support in April, it has never been able to get back to where it was. A series of continued lower highs and lower lows confirms the down trend.

For those ‘hoping’ the pain will end soon, it needs to hold $56.44, otherwise there is a real risk it could be headed for around $42 (I hope not) .

For those wanting in on this quality mining business, then now is not the time. A break out of the channel is necessary first (about $64), then wait for the obligatory pullback and then consider it. Though this will still be a high risk trade. Further confidence could be gleaned from a rise above $73.90, but there is a bit of work for it to do to get there. Best case scenario at the minute is that there is a bit of sideways choppiness in price. Worst case is $42. Play the odds.

ASX:JBH JB Hi-Fi

• StockRank 99

• Momentum Rank 98

• QM Rank 99

• VM Rank 99

• A$44.64

For those interested in JB Hi-Fi (ASX:JBH) please refer to my recent comments in August where I last covered the stock from a Momentum perspective. Nothing has changed from that view.

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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 28 October and is sorted by the stock code.

Changes from last week

Shine Zone list as at 28 October

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“Bus pulling out of the station”

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 28 October and is sorted by the stock code.

Changes from last week

“Pulling out of the station” on 28 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 28 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 28, 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 MIN and interests in companies listed in the data tables . This position can and will change at any time without notice.