Momentum Monday 6th May 2024

Welcome to Momentum Monday.

I am very glad to announce the imminent arrival of our “Investing Mastermind” series where we hear from different Money Managers on how they invest. This series further enhances our reputation as a leading tool in the hands of conscientious DIY share investors and how we welcome all views from the wide diaspora we call investing.

Keep a look out for more detail as it comes to hand.

Otherwise, the market continues keeping on despite the volatility and investors would do well to remember that you need to be in the market more than out of it. But as Momentum investors we don't rely on blind faith to get us through. That further supports why I write this piece and I hope you find it of value to your membership. Please feel free to share any comments, either publically down below or email us at support@stockopedia.com.au

Interesting links

• Weekend Watchlist run in conjunction with Shares for Beginners this week covers in our view on auto parts maker GUD Holdings Listen here to the replay

• Our newsletter to members was published last week covering some of the major highlights from the past fortnight including Chris’ article on . Check your email because we sent the newsletter to everyone. If you haven't got it please email @stockopedia.com.au">support@stockopedia.com.au and we will send you a copy

• Within our newsletter is also a link to a very brief article on AVZ that this week announced it won’t be relisting. This development is nothing to sneeze about. It was once a $4B market cap stock!!!!! Make sure you read it in the newsletter as it highlights why you need Stockopedia all the time! BTW feel free to share it with friends.

• Coming is our next Friday Lunch ‘n Learn which is your opportunity to mingle with the managers of the Australasian business. Click here to book your seat at the virtual table.

• Our “Empower Others” referral program will e undertaking a change. For now we maintain the current system, be sure to Learn more here if you are interested in current plan

• For any external commentary we make to the broader market, follow us on Social Media Facebook Linkedin Instagram or X (formerly Twitter)

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)

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 harder to find a bear on the NYSE than in a Canadian National Park at the minute. A strong performance in the US was enough to see the broad S&P500 close near the weekly highs for the week, up 0.55%.

S&P500 Weekly chart

Keen watches will be quick to remind me that we still haven’t reached the opening of three weeks ago, and they would be correct. Therefore we take the recent two week bounce with a grain of salt, but you can’t deny what has happened with the index. All that said and done, I remain exposed to equities globally and will do so for as long as the index remains above 4734 in the short term.

In a macro economic sense, an easing in geopolitical tensions is seeing the Oil price as well as Gold pull back. It is also becoming increasingly evident that three rate cuts occurring this year was a pipe dream. I had to laugh when the Federal Reserve confirmed as much, but in the same breath also said there will likely be no more rate rises in the near term so that was used as the reason why the market went up that day! We know the real reason of course, and that is that sentiment in US Equities is Strong at the moment. No better evidenced by Apple who missed analysts expectations on device (normally a bad red flag) but they also announced a record all time buy back so the stock went up, by its highest amount since November 2022, as it became the focus of the strong momentum.

I noted with great interest that the likes of McDonald's, KFC and Starbucks in the US are saying that they are witnessing penny pinching amongst lower income families which are a key market for these businesses. This may go some way to explaining the challenges Dominos (ASX: DMP) is facing locally. Though it may be comforting for some to know that the issues they are facing are being felt everywhere.

But it has been a goldilocks economy for some time, especially since interest rates have started lifting from emergency levels, that theme continued on Friday when a weaker than expected jobs data figure saw hopes return of a possible rate cut, even though inflation announced earlier in the week remained stubborn. However as the jobs figure is considered more timely, it is being suggested that something has to occur soon.

But I really have nothing more to add. I mentioned the 4734 level as a flag for me to look closer. But as I said last week that there is no change to my sentiment for as long as we stay above 4117.4, so I am not going to change it now.

AUS S&P/ASX200

Again, we saw a positive week for our market, the second in a row and fortunately we ‘just managed’ to lift ourselves out that sideways channel, and hopefully it is the start of a decent run. Though it would have been nice to see it more emphatic.

S&P/ASX200 Weekly chart

For those looking closely at the recent action, traders will note that 7567 - 7569 has become a solid support level for now. While it is not too far from 7547 that we pointed to in earlier editions, one suspects there will be some activity should this level be breached or indeed support is found here,

The weekly RSI keeps its head above 50 for now, though the MACD is becoming more negative. As a lagging indicator using moving averages this is no surprise and it will be interesting to see what it does next week.

The big macro news locally was the reconfirmation that Inflation is sticky and thoughts that interest rates will be coming down any time soon may be premature. For the record, CPI for the March quarter was up 1% versus consensus which was 0.8%. This was also the number in the December quarter. Therefore while most expect interest rates to be steady when an announcement is made next week, expect there to be a removal of the relaxed bias previously championed and more of a focus on future tightening, otherwise known as more “Hawkish” comments.

But chances are you are not reading this for the first time. Also the market is already acutely aware of this , yet the index rose last week. Just a reminder to not over think such broad issues and focus on what makes you stocks in specific tick. Look at MQG who reported this week and read the commentary we mentioned from a Momentum perspective. It looks like current levels will be significant, therefore investors are on alert right now.

Which is a timely reminder for all those yelling from the cheap seats at the oligopoly run by the two major supermarket chains. It could best to look at the airline industry and see the challenges there in that industry where calls for increased competition have been seemingly ongoing... Sometimes, like the Banking Sector, you need some strong participants to make all the economics work. Without those, then all companies are in strife as Bonza learnt last week.

Finally I note the CEO elect of Babcorp pulled out of a $1.5 million pa job + bonuses. All this before the company recorded a big downgrade to sales in the latest half. Perhaps he felt nervous? But again a reminder to those who use Momentum, be sure to use your sniff-o-meter as well, The attractive role (in my view) was knocked back on Tuesday. The sales figure was downgraded and a massive price fall came on Thursday. Perhaps it was a coincidence? I don’t think so.

Unsurprisingly though the whispers of mega mergers both here and overseas are occurring and therefore this is no doubt supporting sentiment on the broader market in a sense. Just to reiterate, I see no need to panic in the market at the moment so I am not changing my view. I am on alert though, not just because it’s my job, but also the negative noise is growing so I am going to listen to that, but respectfully ignore it for the moment. But again, I remind you that this piece is a sentiment barometer NOT an indicator to buy or sell. To do that, one needs to look at the individual stock.

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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, 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 @stockopedia.com.au">support@stockopedia.com.au

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

ASX: ALL - Aristocrat Leisure

• StockRank 74

• Momentum Rank 63

• QM Rank 85

• VM Rank 54

• A$39.92

It has been a while since Aristocrat Leisure (ASX:ALL) was discussed. It was actually in the middle of last year. You can read it here.

ASX:ALL 1 year Daily chart

In it I pointed to the $37.18 level as structural support. Fast forward to today and I would probably see that still as a relevant level.

The problem is of course the stock went up higher, particularly as the range was broken through to the upside. As expected the stock went up strongly but has since retraced breaking through structural levels of support, the big one for short term traders was $43.70.

The company will be releasing its Half Year 2024 Results on May 16. Investors will be wanting to see some increased traction from the ‘pay real money to play’ online model. This has been the low hanging fruit for some investors and unfortunately ALL has failed to capitalise fully on the opportunity to date in my view. Market moves over the past month suggest it may not be have been successful at achieving this and that there is still a heavy reliance on the traditional Australian and US poker machine business. But we know markets can over-react.

Either way, as is usually the case, that data will be a period of volatility and investors investing for the growth story (the company pays a very small yield) will be most interested in that.

ASX: RMD - Resmed Inc

• StockRank 76

• Momentum Rank 97

• QM Rank 98

• VM Rank 60

• A$32.91

Can’t get them all right (in fact getting it right 60% of the time from a fundamentals perspective and 40% from a trading perspective is all you need to outperform the index over the long run)

This is a long way to cover the wrong call in Resmed (ASX:RMD), a stock I last spoke about in December last year and you can read here.

ASX:RMD 1 year Daily chart

To be fair, while I was hoping I could get some at $20, history will show I couldn’t. What it will show is that we would look at it, and I quote, when “the price has gotten above that level ($24.10) with a stop loss at $21.44 - it's as simple as that.”

That has actually progressed quite well, and the latest quarterly result proved that. While its major competitor Philips has now apparently resolved outstanding lawsuits against it, it won’t be cheap. Further it is going to take a little longer to win back trust before we see any dent in RMD returns (a bull running US Tech stocks also helps)

For me and my style, I would have support at $26.66 given the recent improvement. For traders who go cross eyed looking at squiggly lines, then a short term stop of $32.58 is appropriate given there is a risk the two gaps would be filled all the way down to $28.75 . The target is still $33.85. Which was also the first big gap down in August last year.

ASX:RMD 2 year Daily chart

ASX: SXE - Southern Electrical Limited

• StockRank 96

• Momentum Rank 88

• QM Rank 95

• VM Rank 91

• A$1.225

Just clocking over the two months is Southern Cross Electrical Engineering (ASX:SXE) a stock that has been trending positively as identified in previous comments which you can read here. It was noted that at the time a possible double top was forming,though it could quite as easily go the other way

ASX:SXE 1 year Daily chart

And it did just that, it broke through that 96 cent mark and it kept running. Running all the way to above $1.20 when the stock entered a trading halt pending, “the announcement of a material project award.” - We will learn more on Monday. That will likely create new levels to watch and hopefully more liquidity for this inclusion in the NAPS 2024 Portfolio.

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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

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

Data is at 4 May and is sorted by the stock code.

Changes from last week

Shine Zone list as at 4 May

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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

Here is a shortcut in understanding the reasons why a stock is removed:

• Volume drop = Bus might be moving, but no one is on it

• Price 1 mth < 0% = Bus has been cancelled

• Price 3mths >= 3% = Bus has pulled out of the station

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

Data is at May 4 and is sorted by the stock code.

Changes from last week

“Pulling out of the station” on 04 May

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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 04 May 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 04 May

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