Momentum Monday 4th September

Welcome to Momentum Monday.

Reporting season has ended for another year. While there was the usual winners and losers, a huge collective sigh of relief was let go as it wasn’t as disastrous as many may have expected.

The Australian consumer remained resilient in the face of cost pressures so retail was a surprisingly strong sector. Companies that suffered margin compression as expected were hit hard, like many in the mining and healthcare sectors. But as the fear mongers look for their next target, from a general investment perspective, we can remain comfortable that for the minute our companies are flexible enough to adapt to changing circumstances which gives us comfort for the long term.

But keeping with the more simple theme of Momentum Investing, overall the month of August was a positive one. So just on that simple metric alone, it was good.

We have been busily compiling a collection of the constituents in the ASX200 and how they shifted following the reporting season into a report. You should receive the report shortly which shows the gravity of change for every stock in the ASX200. Subsequent to that report, we will discuss the findings in our coming Friday Lunch ‘n Learn session. You can book your spot at the table here or if you can’t make it, register and we will send you a copy even if you cannot attend.

We do not make these sessions available in the program as they are for member’s eyes only and we do not want the general public to access them.

The content for this week's edition is as always:

• Broader market sentiment

• Member corner

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

• 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.

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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

It's hard not to get too excited when seeing charts like this, but look at them objectively we must…

S&P500 Weekly chart

One very minor point, the support level has now coverage with the short-term upward trend line. While in of itself not that relevant and unlikely to change our views on support levels, a break below the trend line moving would indicate an easing in the pace of the recent run - but we don’t have to worry about that at the moment.

We are fast approaching the end of the North American summer so I would expect more activity shortly. Perhaps under normal circumstances the slight rise in unemployment last week would have more Momentum investors concerned, but then again…. “Bad news is Good news” at the moment and unemployment rising slightly ahead of forecast may have some thinking that Goldilocks scenario can continue and the US Federal Reserve will keep rates on hold longer - I don’t think that will be the case…. Though my thoughts are hardly relevant when it comes to the money that moves the US market.

AUS S&P/ASX200

Another pleasing chart, though nowhere near as advanced as the US. The S&P/ASX200 experienced a strong week itself as the reporting season wrapped up without the sky falling on our heads.

S&P/ASX Weekly chart

But of course there have been as always savage moves which see us raise our eyebrows. Many to do with their reports, but others due to operational issues (eg CHN who disappointed with an underwhelming resource report built on optimistic targets) This is just the market behaving normally

We’ve popped out on top of the symmetrical triangle (again) and hopefully this time it can stick. If it does, then like the US chart,we would have created a new short term higher low and have created the catalyst for another tilt at all time weekly highs.

As alluded to last week, breaks out of such moves can be aggressive, so ‘hopefully’ the next few weeks will be on our side. (NOTE FOR NEW READERS: ‘Hope’ is not a strategy I rely on.) But support for now holds (range of 6995 and 7038) and so we remain long, and with positive signs we are getting ready for another run we can still hold stocks. There have been quite a large number of new inclusions in the Shine Zone and the 52 week high screen (see below). While this doesn't necessarily indicate much, the fact this is occurring with a screen that broadens our isight beyond just the big 200 indicates that sentiment is turning.  

Last week I mentioned what happens with China will govern much of our direction. The focus on getting them back on track and further stimulus announced last week all helps. If the miners/industrials can start pulling their weight that may help support the continued run.

Reporting season as discussed in the intro will go down as being solid. According to most coverages the season was a typical bell curve. Some that underperformed, an equal amount that outperformed and the rest in the middle in line. As mentioned earlier we are compiling a list of the ASX200 and how their Factors of Quality, Value and Momentum moved this reporting season. Then we will go over the findings in the coming Friday Lunch ‘n Learn webinar. Stay tuned for more.

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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.

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:HSN - Hansen Technologies

• StockRank 82

• Momentum Rank 99

• QM Rank 98

• VM Rank 72

• A$5.50

Hansen Technologies (ASX:HSN) is one of the stocks in the Australian and New Zealand NAPS portfolio for 2023 and has been a solid contributor.

ASX:HSN 1 year Daily chart

I quite like how this chart looks. On the above 12mth chart you can see there were clear channels of Resistance that were first formed in late Nov 22, then tested in Jan and Feb 2023. This was also re-tested around late June, early July. This tells me this level is significant and one to watch. And it proved to be when price broke out in August and went on an aggressive run.

But as regularly seems to be the case, the price has pulled back creating a great set up in my view (for disclosure: I will likely buy on Monday provided the price holds on the open.)

The price is still in the Shine Zone, it is above the previous Resistance level (which is now support) and I won’t have to “wait long to know if I am wrong” as depending on my average price, I would likely set a parachute stop loss at $4.87. This coincides with the previous short-term higher low, is a little below 10% from the current price (but as the stock doesn’t move much it needs a little room to breathe) and barring disaster, should not easily swing around that area.

Given the last report any disaster is highly unlikely that will be the chase in the short-term (never say never). Their latest report showed continued growth, they expect more to come and expect margins to remain robust, and net debt has reduced to negligible numbers. It was no wonder to see the price jump as it did. They have sticky clients, great technology and don’t tend to jump around. The pullback on this recent move creates a unique opportunity to consider this stable business.

ASX:ACF - Acrow Formwork and Construction Services

• StockRank 96

• Momentum Rank 95

• QM Rank 98

• VM Rank 90

• A$0.92

If you have been using Stockopedia extensively, I would be floored if you told me you had not had Acrow Formwork and Construction Services (ASX:ACF) come up in one of your screens. It is a regular in the 52 week high screen, it's now in the shine zone (as mkt cap is above $200M), but more importantly it has consistently ranked in the 90’s for sometime with a dividend above 5% and a PE below 8.

It's important to note here that ACF just like others, carries the engineering/construction firm’s discount (ie they are generally cheaper because engineering/construction stocks have a nasty habit of going broke), however ACF has been diligently proving itself. What is there not to like about this chart? It is close to 52 week highs,

ASX:ACF 1 year Daily chart

So thinking less…. We are in. An investor with a shorter term focus may consider a stop loss at $0.79 cents from this level. Those willing to give it time may wish to give them a reprieve until $0.73.

The latest result was positive. The market latched onto the comment that EBITDA guidance for next year is for 24%. They are also quite optimistic on the industry with civil engineering spending expected to rise by evenmore in the next 5 years then previous five.

Just watch liquidity therefore don’t go too heavy. It can sometimes trade over $1m per day, and then some days there is no trade. Therefore consider this when taking a position.

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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

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 eg PDN last week (sorry).

Data is at 02 September and is sorted by the stock code.

Changes from last week

Shine Zone list as at 02 September

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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 02 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 02, 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.

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 HSN  (on Monday), and companies listed in the data tables . This position can and will change at any time without notice.