Follow us on our Journey

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

Sorry, this website uses features that your browser doesn’t support. Upgrade to a newer version of Firefox, Chrome, Safari, or Edge and you’ll be all set.