Weekly Blog - 20 May 2022

Resources, materials, IT and gold all drove the market higher this week while Consumer Discretionary, Energy and Health all fell. Whether you made a profit this week or not probably depended on not only the sectors you favoured but also whether you held your nerve after the big falls of the prior week and Thursday this week. Certainly, Thursday had me thinking that the news of global inflation, rising interest rates and potential recession combined with fall real wages locally was likely to drive the market lower.

With the election over (well votes are still being cast as I write this) some uncertainty will be removed from our market, but it seems that businesses relying on ever increasing consumer consumption could be in for tough times. You only have to look at the results of US retailers last week to see what is probably coming.

The Nasdaq down almost 30% is another sign that the good times for spec stocks are probably on the rocks.

Where to invest (if at all) going forward is going to be problematic in the medium term I suspect and with interest rates rising, cash may soon once again be a potential investment (better than having to pay banks to hold it for you, anyway).

In May 2021 the XAO opened at 7,290 and last week it closed at 7,390 (although it was lower during the week). So after going nowhere for 12 months, what now? I can see the potential for the market to rise out of the sideways pattern it has been stuck in and head for 8,500. However, I also have trouble seeing how that result can be achieved with the economic headwinds the world faces.

At this time I am unable to see any predictive trends or patterns in the XAO and for the time being I’m expecting more of the same soul destroying volatility.

If anyone raced out and bought all my Stocks to Watch that I updated last week they would have made 12% for the week. They all rose bar one, which probably isn’t that surprising when you consider they were stocks selected at a recent bottom in prices where all had charting potential to rise. When the market moved up this week that potential was realised. Due to time constraints I wasn't able to post detailed analysis for my listed stocks last week, however, I have managed to add a couple of items of analysis this week (see the blue hyperlinks on my Stocks to Watch

I’ve dropped CXO from my list this week solely because it has hit weak overhead resistance after rising 18% for the week. I’ve added IMU which, after losing more than 75% of its value has bounced up off underlying support. Will it keep rising? It could and if it does, it might recover a good slice of its losses. However, buying IMU might also be a case of catching a falling knife.

Weekly Blog - 13 May 2022

Friday the 13th turned out to be luck for the ASX but overall the health sector was the only sector to rise with gold down 8.7% and IT down 6.7%. Gold seems to be a lost cause of late with the US$ strengthening (although it is hard to see why that is happening given the US economic outlook is less than rosy).

Last week I said I’d leave my Stocks to Watch listing as it was until this week in the hope the market had settled. It hasn’t. But looking at my listed stocks, only PME and BPT have charts that suggest prices could rise. The other stocks have all made lower weekly lows and/or broken below trend. Yes, they could come back, but their charts no longer suggest that is assured.

As for new listings – DOW has broken above a downtrend (just), ILU has bounced up off a price channel lower boundary (as has LYC), SGM has bounced up off a level of strong support, TPG has broken above a downtrend (as have CGF and CSL) and ORG seems to be turning into a good long term hold with price continuing to rise strongly after breaking above a downtrend mid last year. I haven’t had time to post chart analysis on these 8 new listing but will attempt to do so over the next few days.

Over the past 4 weeks the XAO has fallen 9.6% - near enough to 10% to be called a technical correction and only 3 months since our last correction. I can’t remember seeing two corrections so close together and it is an indication of the difficult economic times the world is currently facing.

While prices fell through a level of support this week (the lower boundary of a small price channel) the week closed well off its lows, giving hope that prices will continue higher next week - but in this market it would be a brave person who made a firm prediction about market direction.

Good luck and keep watching those stop losses.

Weekly Blog - 6 May 2021

As mentioned in last week’s blog, the US market’s fall at the end of that prior week suggested our market would follow come Monday, despite some bullish signals in the charts. As we know it did fall, but on Thursday it rallied strongly and I was hopeful if it continued into Friday most of the losses of the early part of the week would be recovered. Alas, investors, like a herd of spooked rabbits, ran for the doors and prices tanked across the board, both here and internationally - due to central banks warning of potentially greater rate hikes than the market had factored in.

I said a close below 7,500 for the XAO would signal lower prices to come – perhaps 7,300. The XAO finished at 7,468 but as resistance and support levels tend to be bands rather than a precise line in the sand, I’m saying that is close enough to 7,500 and while we are teetering on the edge of the abyss, we’re not quite treading air yet.

Price fell exactly to a long-term line of support the blue dashed line being the lower boundary of the shaded price channel. The close wasn’t at the day’s low so there is hope the market will be seen as oversold and the dip buyers will push the market up Monday.

XAO 6May22

Observant readers will probably see I have slightly adjusted the blue line and the channel and while that could be seen as making the story fit the facts retrospectively, it is just a case of incorporating new data. Charting is dynamic and as the ebb and flow of prices change, chart patterns change as well, and the chartists job is to continually update their analysis.

I’ve left my Stocks to Watch unchanged. While this week has damaged the potential many of the listed stocks possessed, all still have positive aspects that could change their fortunes. And, those that have fallen heavily have a greater likelihood of recovering strongly (that of course assumes they do recover!). I’ll review the damage next week.

PS: I do quite like CGF and it was one of the few shares to rise last week.

Weekly Blog - 29 April 2022

Another week that not too many traders will have enjoyed with losses all round. The XAO fell to long-term resistance around 7,500 and then recovered. The weekly candle is a hammer which suggests higher prices next week. My short-term view remains that the XAO will break 8,000.

Last week I indicated China’s zero-Covid policy was likely to impact demand for our iron ore and other commodities and it did – for 1 day. I sold my holdings in FMG on that concern and was a bit miffed to see the stock pick up 8.0% on Thursday. Although, to put that in perspective FMG was only up 1.9% for the week. I still see some troubled waters ahead for China in the short-term while they doggedly pursue the unwinnable war.

My Stocks to Watch saw little joy given the heavy falls across the market. I’ve removed BRB given its 7% fall this week, but I’m comfortable all the other stocks remain strong contenders to rise. SLR fell 12.3%, so why haven’t I taken it off my list? SLR has large pullbacks at time and I’m unaware of what caused such a large fall. There quarterly report said they were on track to meet 2022 guidance but also said that given Covid related issues they were withdrawing that guidance. Some cynic said that SLR has just announced a share buy back and perhaps dropping their guidance knowing this would reduce the stock’s price might just enable them to buy back stock more cheaply than if they had left guidance in place. Of course, that would be illegal! SLR’s price has stabilised at a level of support and if the company is buying back stock, price is unlikely to rise until sellers at that price have been soaked up. I’m expecting price to rise off that support which is coincidentally about 50% of the last rally from February to April – and charting theory says if price doesn’t retrace more than 50% of a preceding rise then it should go on to make higher highs. We’ll see!

I’ve added CXO to my list this week. It has been running strongly, as have many Lithium producers, but importantly it has an agreement to supply Tesla. CXO has fallen back a little over the past 4 weeks, but it has been building a small pennant pattern. Price needs to move up next week to confirm last week’s low was a trough (which would also confirm the pennant). If price does break and close above the pennant’s upper boundary (blue dashed line) then a potential target of $2.35 will exist. Could make a good trade but the pennant pattern is technically only just a pennant, and it may come to nothing. That said, a break above $1.68 would suggest a target of $2.13 so there are other potential positives here. A break above $1.50 would confirm a higher weekly peak following a higher weekly trough (a buy signal).

A final closing note of doom and gloom. The US market (especially the Nasdaq) had its biggest fall for ages on Friday. All down to concerns about rising interest rates, inflation and a general depressed outlook for future trading conditions. As always, this will probably filter into our market on Monday despite the Australian economic outlook being a bit rosier than Uncle Sam’s. I’m hopeful we might not follow the US lead into the abyss, but certainly spec stocks and the share market darlings with high valuations but not turning a profit will be in for more pain. If my optimism doesn’t bear fruit, then 7,500 could be retested – and a close below that level might be time to put up a sign asking the last one out the door to turn off the lights.

Good luck and check your stop losses.

Weekly Blog - 22 April 2022

Another tumultuous week which saw (personally) good gains until Friday came and swept it all away. The pundits all seem to say Australia’s fundamentals are OK and it is all down to fear of rising interest rates and a likely downturn in the USA.

The charting outlook for the XAO is little changed with the index having hit resistance around 7,900 as it has now done 3 times since August last year. Should price again fall back to 7,500 as it has also done 3 times since August things are less rosy with the XAO having made a triple top – a very strong predicter of bigger falls ahead. If (as I suspect) price rallies again after this current kneejerk reaction to make a new high, that would negate the triple top and we live to fight another day. And, from a technical perspective double and triple highs over a short time frame like this need to be almost exactly the same peak and there is enough difference between the two previous peaks and this week’s to make me think that criteria has not been met.

XAO 22Apr22

Needless to say many stocks chart outlook took a dive this week and of last week’s Stocks to Watch only PME moved up, with PDN and RRL falling by 15% and 10% respectively. I’ve removed PDN, OZL and ASM because their charts are now less supportive of a quick turnaround – but that’s not to say it can’t happen. PDN still has a pattern break that suggests higher prices (but it is hard to argue with a 15% fall in price) and both OZL and ASM made lower lows – suggesting lower prices to come.

I’ve added FLT, COH and BPT this week. All have positive charts and FLT is likely to benefit in the resurgence of international travel, COH has broken up out of a pennant pattern (high probability of further rises) and BPT is likely to benefit from the escalating energy crisis in Europe. All three stocks rose last week.

With the Dow Jones having fallen 2.8% Friday night, the outlook for Monday here isn’t exactly bright. Hopefully, the US was just a reflection of our Friday fall and the bargain hunters will be out and about next week. The XAO is at a band of support and providing it doesn’t fall below 7,700 on Monday the chances of the market living up to my expectation of hitting 8,000 remain good.

A closing word of warning. The elephant in the room at the moment is China, not because of their aggressive attitude towards anyone who they feel doesn't support their China first view, but because of the damage Covid may do to their economy and in turn ours. Their government seems hellbent on maintaining a Covid free policy despite (if you believe media reports) that policy resulting in scenes more likely found in an end of civilisation dysposian novel than a world leading economic power. For me, my money is on the virus winning that struggle and while ultimatley China will, like the rest of the world, survive to live with Covid, ithe short term economic upheaval could impact our China dependent imports and exports and the share price of some companies. 

Weekly Blog - 15 April 2022

With the Easter break I was a bit surprised by the buying on Thursday, but as they say, ‘never look a gift horse in the mouth’.

Both my personal portfolio and my educational (theoretical) portfolios trebled this result – so again, traders fortunes were determined by the sectors held. Both my portfolios are fairly diversified and defensive – so I’ve had days where the market does well and I see only mediocre performance, while on days when the market has been flat, I’ve seen good gains. It’s a crazy game.

Gold has been a bit of a disappointment for me this year as I expected more interest in it as a safe haven from the troubles of the world – of which there seem to be plenty at the moment. Looking at the chart of the gold sector below, price fell to long-term support (the blue dashed line) and rose as would be expected. However, it then decided to retest that earlier low (a common move) before trending up. Price has broken above a minor level of resistance at 6,970 before retesting it and moving up again. I’m expecting the sector to go to around 8,300 as an initial target.

XGD 15Apr22

If we look at GLD there is a not unexpected similarity in the price pattern.

GLD 15Apr22

Some might see this chart as a double top which predicts material falls in price. They could be right, but I think prices will move up to make a higher high and invalidate the double top.

Anyway, it could be a good time to think about gold stocks.

Stocks to Watch is still very much akin to a game of Pin the Tail on the Donkey, but last week’s picks did well with BRB up 15.4%, RRL 17.2% and SLR 8.3%. All are gold stocks – which explains the rise. PDN finally got some traction and rose 6.6% for the week. It’s a stock I’ve been watching for a while and having now broken out of a long-term pennant pattern (and above a downtrend) it would seem to have the potential to go places (yes, I know ‘places’ could mean lower places as well as higher places – but I’m backing higher.)

I’ve not changed my list this week as those picks that rose all have the potential to go higher and the only laggard I have some concerns about it ASM, which fell 6% this week. More falls would see ASM as a losing pick, but I’ve left it in place as it is still sitting above or on a level of long-term support which has held since the stock was listed just under 2 years ago (so not a lot of history in charting terms, making ASM a slightly risky candidate for charting purposes).

The XAO stalled at 7,800 resistance before falling back a tad. However, the week’s candle was positive, closing almost at its high, being the highest close since September last year. Failing bad news, I expect the XAO to continue its push towards 8,050 or higher. Despite this optimism you need to be careful of spec stocks and any stock not yet turning a dollar – just look at what the Nasdaq as done (down over 15% for the year to date)

Weekly Blog - 8 April 2022

Another rollercoaster of a week with the market tossed around by concerns about rising interest rates and inflation as well as predictions of a US recession and of course Vlad the Impaler’s poorly thought out conquest of Ukraine.

With the XAO falling 0.2% for the week, most long term investors would have gone nowhere (my own trading was in line with the general market). The Nasdaq continues to take a hammering (down over 12% for the year to date) and high value but yet to turn a profit stocks here have also been shipping water.

The XAO rose from a minor support level on Friday and (barring unforeseen events) I’d expect higher prices next week. That said, the market had a big recent run up to its present level and the possibility of further falls before the next move up need to be considered as a possibility.

With my Stocks to Watch I’ve removed LTR and TNE because they have both achieved my suggested targets. They may go higher, but for now the patterns I saw in the first instance have been fulfilled. You would have needed to be quick to get out of LTR after it hit target on Monday, as it went on to lose 11% over the next 4 session. I sold 50% of my holding but there is a potential higher target of $2.35 (and I didn’t expect the price to fall as much as it did - or I would have sold the lot – to fight again another day). Hopefully, price will lift from Friday’s low but further falls to $1.60 are certainly on the cards.

LTR 8Apr22

TNE has a similar story having reached target last Wednesday week. I left it in play because it kicked up Friday week ago and I hoped it would go on to make a higher target of $12.40. It followed LTR into the sin bin (along with many other stocks I should say). It looks as if it may bounce up from a minor level of support at this week’s lows. So, like LTR, I’ll keep watching this one.

TNE 8Apr22

I’ve added PME and RTR to replace the aforementioned LTR and TNE.

With big moves being a regular feature of the current market, it remains a difficult time to try and pick winners, and defensive stocks remain a good option. TCL and TLS are two large cap shares I like at the moment that are certainly worth a look.

Weekly Blog - 1 April 2022

The XAO rose by 1.25% thanks to major gains in the resource and materials sectors. If you look at stocks like CXO and LKE you can see the impact lithium is having on our market. The issue for new players in the market is to resist the temptation to sell a stock that is asleep at the wheel and put the proceeds into a stock like the 2 mentioned. Both stocks have risen very strongly and are now probably overpriced – which is a fundamental issue – not a charting issue. A quick look at the most recent valuations on Commsec suggest both are selling for about 15% over valuation. So the first thing to consider if you succumb to FOMO (Fear Of Missing Out) and buy – you will be paying a premium. Secondly, stocks that rise as strongly as these two usually fall back heavily when they turn. Thirdly, buying at the top is always a bad plan. Yes, you could be lucky and the price powers on, but the odds are getting longer.

If we look at CXO.

CXO 1Apr22

The green band is a price channel that has now been well and truly broken. The green lines represent potential targets from a previous resistance break pattern I traded and did OK on. I sold at target and it is interesting to see on the daily chart how price stopped at target and then moved sideways roughly between the two green lines before moving higher. So while I say always look at the weekly chart, sometimes the daily chart will confirm things (like support/resistance) that are not apparent on the weekly. CXO is a hot stock but will it go higher? Possibly, but that big bar on Friday suggests to me that a pullback is more likely. See the large candle just before the previous 2 peaks? History often repeats in charting.

Why did I sell CXO? Firstly, if I’m trading a pattern with a target, my policy is to sell at target rather than wait and see where price goes. Secondly, I’m still quite concerned about the headwinds the market has to deal with at the moment – inflation, rising interest rates, rabid European dictators and the spectre of a possible US recession. Accordingly, I’m generally not trading speculative shares, preferring to play it safe with more established profitable companies. Neither CXO or LKE are making profits, meaning their price is quite exposed to being knocked around by the vagaries of the market.

Speaking of Lithium, I removed LKE from my Stocks to Watch last week for the same reason I sold out of CXO – ie it had almost reached target and I couldn’t see any charting reason for further strong rises. That said the interest in Lithium caused it to rise another 30% last week.

Apart from PLS which rose 6.8%, most of my other Stocks to Watch went backwards, but they still all have potential to rise – so I’ve left them unchanged. Note that these stocks are not likely to rocket up. They could, but they are more likely to have modest gains with modest risk.

Re the XAO's direction next week, it peaked right on a level of resistance (7,820) and fell back a little - this could indicate price is going to reflect down off that resistance and we could have a week of lower prices. It could fall to 7,500 before bouncing up again. Hopefully the recent rally towards 8,000 will continue, but after 3 weeks of higher prices, we are due for a step back.

Contact

Robert Norman

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

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