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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.

Contact

Robert Norman

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

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