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The XAO really hasn’t moved much for 6 weeks and last week was down 0.5%. I had hoped the strong rise the week before would have continued, to see a break above 7,020 - but this is proving a very strong level of resistance. Perhaps the change of US administration and Biden suggesting new stimulus packages might push the US market up. Friday’s close for the Dow was down 0.6% - suggesting another mediocre Monday for the ASX.

While there have been the odd standout trades this week, such as PME rising 17%, the charts of many stocks on my watchlist are mirroring the XAO in showing a lack of direction. Some of the old favourites like CSL, TCL and FPH whose general history is to trend very well are breaking down and threatening stop losses. While I’m still optimistic prices will break higher there are signs of investor pessimism and another correction is possible.

A retracement now could expect a 5% fall in value of the XAO back to around 6,600. The XAO made an almost identical sideways pattern for 13 weeks back in August before falling 5% - and history does repeat in charting.

My own trades slipped another 1% this week with 50% of my holdings in CSL, TCL and 100% of ALU due to broken stop losses and/or further falls on the horizon. I also sold 50% of my PME trade after it spiked for a 40% gain over about 5 months. I may have jumped early but strong spikes are often followed by strong pull-backs and there was some sign of price faltering – but it recovered to make further 4.5% rise.

I used the capital released by the closed trades for small buys into CIM, WPL, CHN and WTC and to top up holdings in BPT, BID, MVP and COH. I had sold part of my COH holding 2 weeks ago but the stock now appears to have bottomed.

The energy sector is running strongly and possibly has further to go with stocks like WPL, BPT and STO all up about 18% for the month.

My Stocks to Watch last week showed twice as many falls as rises – only the oil stocks increased. A number of the fall were back to support levels where price could be expected to turn up, but NXT and NEA both show signs of potentially falling further. ABC has broken below trend strongly last week and has also been removed from the list as its potential has been reduced. A couple of new stocks in CIM and MVP have been added.

My hypothetical long term trade portfolio being run for students of my educational material showed a similar fate to my Stocks to Watch – down about 2% overall.

In summary it is a time for caution.

Contact

Robert Norman

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

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