Weekly Blog - 21 January 2022

If you look at my last couple of blogs I was hoping the XAO would rise from its support level of last week, but if it fell through that I said 7500 was likely to be the next stop on the way down – it closed at 7490 on Friday. Last week’s candle on the XAO was the most bearish since the Covid crunch in 2020 and there is a chance that such a high level of momentum could see prices break lower into a correction. The level of support price is sitting at has turned price 3 times in the last 6 months so I’d expect it to do that again. However, the US fell back again in Friday trading, putting the Nasdaq well into correction territory and the S&P not far off. If our market follows that lead Monday and fails to close above this week’s close then, from a charting perspective, we’re on thin ice. Hopefully, the local market could be seen as oversold and bargain hunters might kindle a recovery.

7,700 was a level of support last week, but as price broke lower it now forms overhead resistance to price rising and if price struggles to break above 7,700 that could improve the odds of a correction.

7 of my 10 Stocks to Watch fell. ADO rose over 15% and the 2 new additions last week (BPT and NCM) both gained ground. PDN (down 12.5%) was the worst performer and should be dropped, but price is so close to the support of the lower boundary of the pennant pattern price has been building, I have left it there. I thought PDN might break up out of the pattern 2 weeks ago and have had a conditional buy on it ever since. As that buy is conditional on price making a new weekly high (something that hasn’t happened) the tradehasn’t triggered, and I’ve been protected from the falls. It is a good example of why conditional buys are my preferred way of entering a trade.

Two of my trades, CSL and WES, have both broken below trend for 2 weeks and will be sold Monday.

Gold is looking bullish at the moment and the following is an extract from a post on a trading forum I follow –

From a charting perspective the gold sector has started to show signs of life and the sector chart is a technical buy, having broken a technical downtrend and made higher weekly troughs and peaks.

Goldsector 21Jan22

However, the descending blue dashed line is resistance that the sector needs to break above.

Not surprisingly, physical gold is also bullish but needs to break and hold above about $1,860 to get above a long-term level of resistance.

GLD 21Jan22

The only thorn in the side of Gold is higher interest rates – which tend to devalue assets like gold that do not generate income.

Good luck for next week – we may need it!

Weekly Blog - 14 January 2022

Nothing has changed with the market outlook since last week, other than mutterings about inflation and higher interest rates have become louder (and anecdotally responsible for this weeks pullback). I suspect the market has now factored in the inevitability of rate increases and after last week’s knee-jerk reaction, next week might be business as usual.

Covid remains a drag on confidence but there are signs that in some countries the incidence of Omicron may be peaking. If that suspicion is proved correct, expect an uptick in confidence and market activity. Our Covid peak is estimated as likely to be reached in a few weeks – not months.

To repeat previous Blogs – the XAO is travelling in two price channels, one large (light green) and one smaller (dark green). Since the start of December price has respected the lower boundary of that channel. Assuming that continues (and it certainly doesn’t have to) price could fall a tad to support at 6650 and then (hopefully) move up to finally break above 7900. 7900 is a very strong level of overhead resistance and is likely to put up a fight.

XAO 14Jan22

For the last 3 weeks, opening and closing XAO prices have moved in a range of only 50 points. Also the last 2 weeks candles (unsurprisingly) suggest indecision – although the lower volumes of the holiday break may have skewed that analysis. With some stocks experiencing quite large moves (both up and down), I suspect the pressure is building for a bigger move in the market in general, however, this is probably not a time to try and second-guess the outcome with your chequebook.

There are some really interesting long-term charting patterns being built by many stocks and I hope to find the time to publish a short video explaining a few of these.

Stocks to Watch were a mixed bag (as one could probably expect in these market conditions). ADO rose 14% while ARB was down a similar percentage and BFG fell 10%. I’ve deleted ARB and BFG from this week’s list – although BFG very well may kick a goal soon, given a long-term pattern it is following. PDN hasn’t broken up out its pennant pattern as hoped and looks as if it may retrace to underlying support before having another try. However, it is possible last week’s pullback was the last gasp of sellers and this week will see a move up. I’ve left PDN on my list for now. Gold has been suggesting it has bottomed for almost 12 months and after a failed rally starting last March and ending on October, perhaps last week’s rumblings of life will see that sector push up (up 3.8% last week). Accordingly, I’ve included NCM this week. CIM was a contender based on it being near a low not broken for about 17 years (apart from the Covid March 2020 fall). It is also making a pattern that suggests it should now move up making generally higher weekly peaks for some time. Interestingly, it has made a double bottom pattern - something suggesting a strong push up is ahead and CIM may be a good long-term hold. As for Stocks to Watch, with only one stock able to be added) I’ve included BPT as it is building a short-term resistance break pattern.

Weekly Blog - 7 January 2022

If 2022 continues as it has for the first week, we’re in for a wild ride. Last week we had the biggest daily rise in 5 years followed by the biggest daily fall since the GFC - and the XAO made a new all-time high.

What else has happened in the last 3 weeks since my last report? Not a lot is the short answer. The market has continued the sideways action it has been locked in for the past 6 months. I had hoped the mad rally in prices early last week might have been maintained and we would have seen a break out of a pennant pattern the XAO has been building for several months. Below is an image of how I saw this pattern a couple of weeks ago, where a break above the upper boundary of the pennant (blue dashed line) would suggest a rally towards 8,000.

XAO pennant7Jan22

However, price has fallen back from that potential breakout and if it can’t claw its way back to another all-time high and confirm a break up out of the pennant pattern, then it could fall back to 7,500 again. If that fall precedes another move up from 7,500 then the shape of the XAO pattern is more likely to be a rectangular flag pattern (both pennant and flag patterns have the same meaning – they are just different shapes).

XAO flag 7Jan2022

Both are more likely to break up and lead to a rally than break down into a correction, but a flag pattern would need to see prices break above 7,900 to suggest a good rally.

The other alternative is that price falls and breaks down below 7,500 and we would then be on the road to a correction or even a bear market - but until the market shows its hand, this is all just speculation.

I had a quick look at some of our sector charts and in summary - Energy, Financials, Resources and Materials all have bullish charts – but of course that doesn’t mean all stocks in those sectors will rise. Consumer Discretionary looks to be rolling over after a strong Covid stimulus run up (no surprises there). Gold has a very bearish chart but would seemed to have bottomed a little over 12 months ago and may be heading for a recovery – although it remains in a downtrend and therefore it may be a bit premature to buy in yet. Health Care has gone nowhere for a couple of years and is currently in a formal downtrend. IT is also in a sideways action and a downtrend.

Interest rates and inflation are potentially the ‘elephants in the room’ and were cash rates to move up to combat inflation, a fall in equities is possible. You only need to look at what a spike in US bond rates and the Federal Reserve suggesting that rate rises are on the horizon did to prices this week. Yes, the initial dip recovered but sometimes these dips are how corrections start. They take on a life of their own as spooked investors blindly bolt for the door.

The old supposed Chinese curse (although there’s no evidence of the Chinese being its source) - ‘may you live in interesting times’ could apply to share trading in 2022.

Any step back by the market will hurt speculative stocks with sky high valuations more significantly than blue chip stocks and sticking with good solid companies that are ideally nearer their lows than their highs is potentially a good defensive plan. A stock forum I belong to asked members to pick 4 stocks they felt would do well in 2022. These sort of contests are usually won not by chartists but by fundamental analysts who back speculative stocks with good but unproven prospects. Those that kick a goal make huge gains – but for every one that performs I suspect 10 more fall by the wayside.  

Anyway, I scanned the XAO and came up with the following stocks that were coming off significant lows and showing potential signs of moving up again – ie buy the break above downtrend theory.

A2M, ABC, AGL, CGC, CGF, DUB, FLT, NCM, NUF, PDN, RRL, SPL and WEB.

Only being able to pick 4 stocks meant it was something of a ‘pin the tail on the donkey’ exercise but I ultimately settled for the last 4 of those stocks (PDN, RRL, SPL and WEB) to be put forward as my 2022 picks.

Looking back at my old posts I realised that I also picked 11 stocks that I thought might do well at this time last year. The results were a mixed bag as the table on the left of the chart below shows.

ASX Sectors 2021

Of my picks, 70% rose but of those that fell 2 did so very badly. Would a trader in those 2 losing trades (BPT and IFM) have escaped damage by exiting? Probably not, as both had large one day falls that would have caught most traders out. BPT did recover 50% of its losses and made a pattern predicting same, so a knowledgeable chartist might have cut their losses then. IFM’s fall from grace was closer to the end of 2021 and while still well under water, it is making a comeback and for a trader prepared to work out this damaged trade, they may yet recover their losses.

My last Stocks to Watch in mid-December have generally done well with all but 1 rising (I haven’t kept stats of by how much). The losing pick was HUB, and having last week made a lower low I’ve removed it.

TLX has almost achieved target and with little upside left has been removed. PLS blasted past target and could be one to take profit on – so also removed.

To Stocks to Watch I’ve added PDN (potential pennant break out), TRS (an ‘on again, off again’ pick over the past year), and ADO (potential resistance break). ABR was a close contender for listing for those who want to check it out.

Good luck for 2022 – you might need it!

Weekly Blog - 17 December 2021

Wile the XAO fell again this week its general trajectory over the past 3 weeks is up. There is overhead resistance around 7,750 and price got very close to that last week before falling back. It’s hard to say whether price will recover and break higher (hopefully through that resistance), or fall back to the 7,500 level again. In short, the market continues to tread water with concerns over COVID and inflation a drag on investor confidence.

My Stocks to Watch last week generally moved up with FMG, ILU and PLS all gaining 5% or better. I’ve removed FMG this week. While still rising it has reached my target and I’d expect it could fall back. I sold my own holding Friday to crystallise profits. I’ve added RED and TLX as both are at or above resistance and could be expected to go higher (RED has a potential 15% gain to my target and TLX 10%-15%). TLX shot up the week before last and fell back a little this week as might be expected.

My own trading was up on the market again this week – well it would have been, was it not for CSL falling back 8% after funding one of the largest takeover offers the world has seen ($6B) by a discounted share issue. I’m expecting they will bounce back but it could be a long time before they get back to pre-fall prices.

As a trader there is little in this market to get excited about and the conservative amongst us need to just keep putting one foot (trade) in front of another while closely managing open trades.

Weekly Blog - 10 December 2021

Despite the media trumpeting ‘best trading in months’ after a couple of big daily rises, we shouldn’t lose sight of the fact the XAO is below where it was 2 weeks ago and until price confidently closes above 7800 we haven’t shaken of the current 4 month downtrend.

My feeling remains that the XAO will break above 7800 but with the market nervous about inflation, COVID and China, nothing is certain.

Most sectors ended in positive territory this week with gold up a whopping 3.5% and consumer discretionary not far behind at 2.5%. However, tech could only manage 0.03% - so how well you did depended on how your portfolio was weighted.

I’ve done very little trading over the past few weeks, preferring to manage my existing trades and minimise risk in these 'interesting' times. This week my best performers were FMG and EVN – both up close to 6%. I did see one trade I couldn’t walk away from last Thursday when TXL spiked. I bought in on Friday and ended up 3% to the good – although the stock rose a staggering 24% this week. I believe it may go another 10% based on my analysis.

The XAO rose 1.65% for the week and while my own trading was close to 3.5% to the good – in part that would be compensation for last week when I fell short of the market.

In my Stocks to Watch this week I removed NMT after it fell 10.7% for the week and have included ILU which could have a 20% gain ahead of it if it moves back to the top of a price channel it has been in for the past 12 months. My picks from last week did very well (apart from NMT) with 6 of the 10 stocks rising by about 3.5% on average.

(Note: I seemed to have suffered a technical glitch with my Stocks to Watch last week as it did not seem to have updated from the prior week. My apologies if this confused anyone.)

Weekly Blog - 10 December 2021

Despite the media trumpeting ‘best trading in months’ after a couple of big daily rises, we shouldn’t lose sight of the fact the XAO is below where it was 2 weeks ago and until price confidently closes above 7800 we haven’t shaken of the current 4 month downtrend.

My feeling remains that the XAO will break above 7800 but with the market nervous about inflation, COVID and China, nothing is certain.

Most sectors ended in positive territory this week with gold up a whopping 3.5% and consumer discretionary not far behind at 2.5%. However, tech could only manage 0.03% - so how well you did depended on how your portfolio was weighted.

I’ve done very little trading over the past few weeks, preferring to manage my existing trades and minimise risk in these 'interesting' times. This week my best performers were FMG and EVN – both up close to 6%. I did see one trade I couldn’t walk away from last Thursday when TXL spiked. I bought in on Friday and ended up 3% to the good – although the stock rose a staggering 24% this week. I believe it may go another 10% based on my analysis.

The XAO rose 1.65% for the week and while my own trading was close to 3.5% to the good – in part that would be compensation for last week when I fell short of the market.

In my Stocks to Watch this week I removed NMT after it fell 10.7% for the week and have included ILU which could have a 20% gain ahead of it if it moves back to the top of a price channel it has been in for the past 12 months.

(Note: I seemed to have suffered a technical glitch with my Stocks to Watch last week as it did not seem to have updated from the prior week. My apologies if this confused anyone.)

Weekly Blog - 3 December 2021

The XAO fell 0.7% this week and after 4 straight weeks of falls it is back to where it was 6 months ago. 7,500 has proved a strong level of support and after falling to that level last Monday, prices have bounced along sideways. If price follows its recent dance card it should move back up to around 7,800 in the leadup to the Xmas break. Should it break lower and close confidently below 7,500 – expect even lower prices to follow.

The XAO has made several price channels within price channels and while it is difficult to untangle what these channels suggest about where price might go, I can see an argument that says price has fallen to the bottom boundary of a channel that goes back to the Covid tumble in March 2020. Theory suggests that price ‘could’ now move up to break out of its recent trading range towards the top boundary of that channel around 8,300 – 8,500. On the chart below the black diagonal lines mark the momentum of previous short rallies and the most recent of those lines suggests where a new rally might head, were it to start now.

XAO 3Dec21

One the negative side, the XAO has been in a general shalllow downtrend since August – although importantly not a formal downtrend (were prices to now fall below 7,445 a formal downtrend would be confirmed). Charting theory says that when prices are in a downtrend, expect them to continue falling – although obviously they can’t do so forever.

Prices have risen during December and January for 5 out of the past 6 years – so let’s hope history repeats.

As for next week, while the US market was sharply down again on Friday it rallied in the latter part of the session which might carry prices higher on Monday. Our futures for Monday suggest a rise of 11 points although I’m not expecting much optimism from the market until a prognosis regarding the impact of the Omicron COVID variant is known. Let’s hope it is, as some suggest, simply mutating towards becoming a no greater threat than the common cold (which is thought to have originated from a bird flu that jumped the species barrier 200 years ago).

I’ve been feeling my Stocks to Watch has ‘lost its way’. I originally intended this to be a list of stocks that had charting patterns that suggested an increase in price was probable. As chart patterns may take a short time to be proved right or wrong (prices may even fall before moving up) I have been leaving stocks listed until they prove the analysis correct or otherwise. I’ve decided to revert to the original concept – only list a maximum of 10 stocks whose chart suggests prices may move up.

I also have not updated Stocks to Watch for a couple of weeks as I’ve been taking some time off and the market has been falling back, possibly even rolling over into a correction -  making chart predictions less reliable.

Seven of my previously listed stocks have fallen back or gone nowhere and while my review suggests they still may live up to their promise, in terms of my revised rules I have removed them.

I have added NUF, ORE, HUB, NMT, PLS, ARB and TLS with associated analysis to be found in my Stock Commentary – or just click the stock’s code here.

Weekly Blog - 26 November 2021

The XAO had a big fall on Friday and closed below a level of support – suggesting a continued fall to 7,470 (or beyond is potentially possible). With the index making lower weekly troughs and peaks it all feels a bit ominous.

Neither the larger market or many of the underlying stocks give me much confidence of next week being positive. However, perhaps bargain hunters will see the market as cheap and push prices up. I gather the US market was closed Thursday and the absence of their buyers has been suggested as one reason for the selling frenzy here today. The other elephant in the room is the escalating Covid infections in Europe and a new radically different Covid variant in South Africa (also detected in Japan I think I read). And you thought lockdowns were over..........

Given the uncertainty in the market I am not revising my Stocks to Watch this week.

There’s little a trader can do except manage his open trades and pay a close watch to stop losses. 

Contact

Robert Norman

Phone: 0428 346 951
Email: robert@sharecharting.com.au

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