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Another up week for the XAO (1.5%). As the chart shows price has risen to the upper boundary of a price channel which has seen the XAO range-bound since June. My preferred view is that price will break up out of that channel next week to move up towards 6,800. The alternative view is that the XAO will fall back from its current level to around 6,000 before moving up again. While this probably sounds like having a bet both ways (ie “price could go up but it could go down”), until prices move decisively one way or the other all we can do is hope for 6,800 while being ready for a pull-back, if it happens.

My portfolio rose just under 2% for the week – a little better than the overall market. I decided to sell 50% of my small holding in MSB as I could see it going lower (it ultimately lost 7.7% for the week so perhaps I should have sold the lot!). BXB rallied slightly from my stop loss but it was sold this week for a small loss (.06%) as it hadn’t performed as I had hoped and remains in a downtrend. I also quit a small long-term holding in AVH that I had been watching since I got caught when AVH’s price collapsed in March. Price had rallied a bit since the start of August, but this week saw a fall of 6.6% eroding most of those gains. While I think its price will recover, that could be a long process and (like BXB) I believe my capital could be better utilised elsewhere.

My best performers for the week were MQG (up 3.5%), PME (9.0%), ALU (3.9%), MYX (3.1%). Worst performers were LOV (-4.5%), MSB (-7.7%).

Two stocks I’ve mentioned in the last couple of weeks have continued to rise – DSE (up 44% for the week) and BAP (8.7%).

I identified 12 new stocks for potential inclusion in my Stocks to Watch page this week but decided to limit that to six that seem to have the strongest outlook. Two stocks (DSE and PTB) were removed from the list.

Thought for the week:

Many investors have poured into BNPL stocks in recent times. ASIC is about to rule on whether BNPL lending should be subject to responsible lending guidelines (something separately being considered for watering down by the federal government). My guess is ASIC will require BNPL lenders to adopt similar procedures as required by current consumer lending legislation. If that comes to fruition the BNPL business model will suffer a significant hit.

XAO 16Oct2020


Robert Norman

Phone: 0428 346 951

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