Follow us on our Journey

Last week I commented on how the XAO was stuck at 7725 and we needed to see a confident break above that level for a sustained (but probably short) rally to be likely. I also said the candles were suggesting a possible pullback this week. While Monday and Tuesday saw slightly higher prices, Thursday and especially Friday (it’s always Friday, isn’t it?) saw a steep reversal and the XAO closed down 1.1% for the week.

The bearish candle on Friday suggests further falls next week. However,  Friday was the day before an extended break for many in Melbourne thanks to a horse race – something which probably saw a rise in the number of trades being closed out to avoid being caught by surprises over said break. Should any day close below 7,480 next week it could be a sign further falls are coming and it would suggest to me the XAO is eying off 7,160 – which is the next level of support, and very close to a 10% correction from the August high.

The week before last my personal trading underperformed the market, bus as is usually the case, this was just a matter of timing and I closed up 2% overall. After IFM gave my trading a black eye last week I’m still holding as it is yet to close below the prior low on the weekly chart. Price is near the underlying long term support line of a large price channel and I’m still hopeful IFM may recover (but less hopeful than I was).

My best performers were NMT (rose 19.7%), TRS (up 8.3%) and LYC 7.2%

Given that I sense ‘clouds on the horizon’ it has been hard to get excited about any stocks this week, but one that caught my eye was ORI. This stock has been in a general long-term decline for 2 years, but broke above that downtrend 4 weeks ago (a buy signal). It is also coming off a significant low and making higher weekly troughs and peaks. The stock also made a double low at $11 with the prior low back in 2009. The double low predicts strong price rises ahead (usually around 100% gain – a rise of another $11 – now that would be nice). Accordingly, ORI has been added to my Stocks to Watch this week.

Last week’s Stocks to Watch had a mixed performance to overall break even. TRS did spike 8% and being very close to my target of $7.10, has been removed from this week’s list – although I continue to hold in the expectations of it continuing to track higher. BOQ has also been removed as it fell back 3.3% this week, significantly more than other banks lost. That fall also voided the pattern I thought price had been making and it now looks like it could be a simple rising price channel where Friday’s fall took price to the lower boundary of said channel. From that point it should/could rise but it’s outlook is now less certain for me. Again, I will continue to hold in the expectation the channel boundary will cause BOQ to bounce up.

The markets fear of economic ramifications from Covid appear to have lessened with Australia relaxing its lockdown restrictions. However, with the spectre of China invading Taiwan becoming more tangible, and China’s property market potential meltdown, focus has turned to these new concerns. Bond rates are rising and assuming that continues, the expectation would be for company profits and hence share prices to be constrained to some extent. Rate rises are a particular concern for Australia because of our very high levels of residential mortgage debt, much of which has been taken on by borrowers expecting rates of 2% to remain in force for ever (and forever has just arrived I suspect). At these record low levels a modest increase of 2% effectively means a doubling of loan repayments and very high levels of mortgage stress that could further impact our economic outlook.

On a more positive note, the market might see Friday’s market as oversell, bringing the bargain hunters out.

All the best, watch your stop losses and trade conservatively.

Contact

Robert Norman

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

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