Weekly Blog - 4 March 2022

Another week of volatility and winners and losers. I had some luck with PDN after I sold it when it spiked (and before it fell back 26%  - although it recovered to only be down 14%). It seems this was due to investors thinking that if  the Ukraine nuclear reactor has a problem (thanks yet again to Vlad the Impaler) uranium might again be 'on the nose'.

After rising for 5 days the XAO fell off its perch on Friday (I hate Friday trading). While it was down 1.8% at one stage today it recovered to close down only 0.7%. My own trading was up 3.1% for the week.

It’s a coin toss which way the market will go next week but as today’s candle closed above its mid-point I’d be leaning towards prices moving up again come Monday.

CXO is a stock I’ve been looking at as having some promise. I haven’t added it to my Stocks to Watch because of the difficult market (and I’m away from the office for a few days). However, against my own advice of not trading in this market I bought a few CXO this week - only to see it promptly fall back 5%.

There's not much to say about the XAO other than it is just a matter of waiting out this period of uncertainty.

Weekly Blog - 25 February 2022

I suggested in a post the other day that the XAO could go either way from the 7,480 level that had been supporting it, and if it fell it could see 7,200. Price fell within 0.5% of that target this week – close enough to be considered reached. However, I wouldn’t be surprised to see prices pull back a little more to fully achieve 7,200 before moving up again. The bad news is that if price falls below 7,030 (mores so if it closes below that level), I think we could very well move from a correction to a bear market with a potential target of 6,400. Hopefully, that doomsday scenario won’t happen, and prices will continue to build on Friday’s recovery, but it is worth keeping in the back of your mind.

While the XAO fell 3%, my risk off, educational portfolio fell back only 0.9% - so the theory seems to be working.

Unsurprisingly My Stocks to Watch generally fell back – heavily in the case of ILU and FLT who both ended 10% in the red for the week. The only real winner was PDN up 6%.

My own portfolio finished in line with the XAO due principally to ADO and FLT – both down around 10%. Both remain a hold in my view but were ADO to fall lower it will break my stop loss. FLT’s chart suggests further losses are quite possible but it is at a level of minor support.

A couple of other stocks I had picked (but not listed or bought) to possibly move up were COH and HUB – up 16% and 13% respectively.

Given the Ukraine issue is still unfolding (badly) I don’t consider it appropriate or wise to try to pick stocks likely to rise in the short term. However, gold could gain ground as it has broken above trend and being a safe haven in times of crisis, spiked this week before falling heavily to close lower.

Good luck.

Weekly Blog - 18 February 2022

Another up and down week with the mixed bag due to geopolitical issues and reporting season expectations being met or not met as the case may be.

The XAO has gone nowhere over the past 2 weeks and it remains sitting at support. The weeks candle was a doji which signifies indecision (hardly surprising) and a possible change of trend (possibly a fall). The support level is a strong one so there is also reason to believe that will hold and prices might move up next week. My personal feeling is that we’ll see higher prices next week (subject to issues in Ukraine not worsening).

Gold seems to be making a revival with GLD up 2% for the week along with NCM who gained 7%. Both these charts are sitting just below significant resistance and a similar move up next week to close above resistance would suggest gold could be in for a run.

My Stocks to Watch basically broke even – thanks principally to NCM which picked up what the others lost. I’ve added BRB this week and while it is a bit of a ‘roughie’ it has the potential to do really well.

Good luck for the coming week.

Weekly Blog - 11 February 2022

It at least seems the fall into the end of January was a correction and unlikely to continue to grow into a bear market – although that still remains a possibility should the rise over the last 2 weeks prove to be a Dead Cat Bounce. I remain optimistic the recovery will continue, but wouldn’t be surprised to see lower prices this week before a continued move up. Geopolitical issues and concerns over inflation will probably keep the market jittery. Profit reporting season is also getting under way and any companies not meeting investors expectations in the market are likely to pay a heavy price.

The XAO is making an interesting pattern. I recently said I saw the potential for a Wyckoff Pattern building in the XAO. This would suggest price would rise from the recent low back above the lower boundary of the rectangle on the chart below and then fall back to retest that boundary – and that’s what it has done. Wyckoff Theory suggests that assuming price bounces up off that lower boundary then it should make generally higher peaks and troughs for some time. We’ll see!! In this market, a period of generally consistent growth seems unlikely in the short-term.

XAO 11Feb22

Most of my Stocks to Watch rose last week with ILU and TRS both up by about 7%. While some other stocks are possibly showing greater potential than my listed stocks, those already on my Stocks to Watch still have the possibility of fulfilling their patterns and running higher. As such I don’t see any reason to change this list.

Having been off doing other things, I wasn’t able to produce a blog last week. This week, while the Stocks to Watch haven’t changed, I have reviewed and updated each stock’s analysis – which can be found by clicking on the links in the Stocks to Watch page.

In respect of my own trading, I closed out most trades during the recent correction as stop losses were broken. I kept FLT and have since topped that trade up. I have also bought back into PDN and MQG and subsequently topped both trades up. JLG, BPT, TLX, NCM, ADO and FMG have also been buys. Last week saw a profit of 1.7% in my trades and my educational long-term portfolio made 1.5% while the XAO rose 1.3%

Weekly Blog - 24 January 2022

OK, we’ve crawled out of our bunker to survey the havoc wreaked upon us from last weeks storm on the ASX. Is the fall over? Do we rush in to buy given the low prices?

The issues that caused the fall (Ukraine and rising interest rates and inflation) are perhaps in part resolved as the lower stock valuations will factor in interest rate rises, but European geopolitical issues remain and are perhaps more heightened now than a week ago.

The XAO fell 11.7% from its peak and that is in line with most of the similar corrections over the past 10+ years, suggesting a bottom may have been reached.

Scanning my watchlist stocks shows some have been structurally damaged by selling pressure and may take time to recover. However, many are at support levels and/or bounced off support levels yesterday – ie they are primed to rise. The US market closed up strongly in positive territory for the week – so we could see Friday’s bounce resume Monday. But will it be the Dead Cat bounce?

Looking back at the history of corrections over the past decade, most showed some instability for a few weeks after their bottom before climbing back. A couple did just turn up and keep on going, but they were a minority. The interesting thing for me was to look at the bigger falls – corrections of more than 11% through to the two bear markets we’ve seen since the GFC. The majority of these showed a small recovery (perhaps just a week) in their decline around the 11% level (ie where we currently are) before continuing to fall (the said Dead Cat bounce).

My Stocks to Watch this week are only worth looking at if you think the market is now going to recover and not tip over into further falls.

I may not have time to provide detailed analysis on my views for these shares as I would normally.

OZL, PDN, TRS and TLS were on last weeks list and all lost ground last week (TRS by 12%) but all are at strong level of support and set to recover.

I’ve added MQG, JLG and FLT because they are all at strong levels of support. Also included is NCM which needs a bit more explanation.

Gold is interesting in that its price has fallen to a level of support that has caused price to bounce up from 3 times in the past 6 months – meaning gold might show a strong recovery in the next few weeks and were it to break and close above $1,860 then it should head quite a bit higher. That said, NCM which is our largest gold producer made a new low yesterday – it’s lowest price in 2 years. And, lower lows are a sell signal. On a more positive note, NCM’s low made a double bottom with the prior March 2020 Covid fall low. Double bottoms suggest very material rises around the corner. Sounds good, but be aware NCM needs to rise to make a true bottom (not just a low) and validate that pattern. At the moment all we have is a falling price.

Oh and if you think further slides into the abyss are likely, buying BBOZ could be worth thinking about. BBOZ moves inversely to the ASX, but being a geared ETF, yesterdays 2.1% gain by the XAO meant a 5.4% fall in BBOZ. Good if the market is falling but bad if its rising.

Good luck to all for the coming week. There will probably be no blog next from me next week - unless a trip I’m planning in the remote Victorian bush near the headwaters of the Murray River is rained out.

Weekly Blog - 21 January 2022

If you look at my last couple of blogs I was hoping the XAO would rise from its support level of last week, but if it fell through that I said 7500 was likely to be the next stop on the way down – it closed at 7490 on Friday. Last week’s candle on the XAO was the most bearish since the Covid crunch in 2020 and there is a chance that such a high level of momentum could see prices break lower into a correction. The level of support price is sitting at has turned price 3 times in the last 6 months so I’d expect it to do that again. However, the US fell back again in Friday trading, putting the Nasdaq well into correction territory and the S&P not far off. If our market follows that lead Monday and fails to close above this week’s close then, from a charting perspective, we’re on thin ice. Hopefully, the local market could be seen as oversold and bargain hunters might kindle a recovery.

7,700 was a level of support last week, but as price broke lower it now forms overhead resistance to price rising and if price struggles to break above 7,700 that could improve the odds of a correction.

7 of my 10 Stocks to Watch fell. ADO rose over 15% and the 2 new additions last week (BPT and NCM) both gained ground. PDN (down 12.5%) was the worst performer and should be dropped, but price is so close to the support of the lower boundary of the pennant pattern price has been building, I have left it there. I thought PDN might break up out of the pattern 2 weeks ago and have had a conditional buy on it ever since. As that buy is conditional on price making a new weekly high (something that hasn’t happened) the tradehasn’t triggered, and I’ve been protected from the falls. It is a good example of why conditional buys are my preferred way of entering a trade.

Two of my trades, CSL and WES, have both broken below trend for 2 weeks and will be sold Monday.

Gold is looking bullish at the moment and the following is an extract from a post on a trading forum I follow –

From a charting perspective the gold sector has started to show signs of life and the sector chart is a technical buy, having broken a technical downtrend and made higher weekly troughs and peaks.

Goldsector 21Jan22

However, the descending blue dashed line is resistance that the sector needs to break above.

Not surprisingly, physical gold is also bullish but needs to break and hold above about $1,860 to get above a long-term level of resistance.

GLD 21Jan22

The only thorn in the side of Gold is higher interest rates – which tend to devalue assets like gold that do not generate income.

Good luck for next week – we may need it!

Weekly Blog - 14 January 2022

Nothing has changed with the market outlook since last week, other than mutterings about inflation and higher interest rates have become louder (and anecdotally responsible for this weeks pullback). I suspect the market has now factored in the inevitability of rate increases and after last week’s knee-jerk reaction, next week might be business as usual.

Covid remains a drag on confidence but there are signs that in some countries the incidence of Omicron may be peaking. If that suspicion is proved correct, expect an uptick in confidence and market activity. Our Covid peak is estimated as likely to be reached in a few weeks – not months.

To repeat previous Blogs – the XAO is travelling in two price channels, one large (light green) and one smaller (dark green). Since the start of December price has respected the lower boundary of that channel. Assuming that continues (and it certainly doesn’t have to) price could fall a tad to support at 6650 and then (hopefully) move up to finally break above 7900. 7900 is a very strong level of overhead resistance and is likely to put up a fight.

XAO 14Jan22

For the last 3 weeks, opening and closing XAO prices have moved in a range of only 50 points. Also the last 2 weeks candles (unsurprisingly) suggest indecision – although the lower volumes of the holiday break may have skewed that analysis. With some stocks experiencing quite large moves (both up and down), I suspect the pressure is building for a bigger move in the market in general, however, this is probably not a time to try and second-guess the outcome with your chequebook.

There are some really interesting long-term charting patterns being built by many stocks and I hope to find the time to publish a short video explaining a few of these.

Stocks to Watch were a mixed bag (as one could probably expect in these market conditions). ADO rose 14% while ARB was down a similar percentage and BFG fell 10%. I’ve deleted ARB and BFG from this week’s list – although BFG very well may kick a goal soon, given a long-term pattern it is following. PDN hasn’t broken up out its pennant pattern as hoped and looks as if it may retrace to underlying support before having another try. However, it is possible last week’s pullback was the last gasp of sellers and this week will see a move up. I’ve left PDN on my list for now. Gold has been suggesting it has bottomed for almost 12 months and after a failed rally starting last March and ending on October, perhaps last week’s rumblings of life will see that sector push up (up 3.8% last week). Accordingly, I’ve included NCM this week. CIM was a contender based on it being near a low not broken for about 17 years (apart from the Covid March 2020 fall). It is also making a pattern that suggests it should now move up making generally higher weekly peaks for some time. Interestingly, it has made a double bottom pattern - something suggesting a strong push up is ahead and CIM may be a good long-term hold. As for Stocks to Watch, with only one stock able to be added) I’ve included BPT as it is building a short-term resistance break pattern.

Weekly Blog - 7 January 2022

If 2022 continues as it has for the first week, we’re in for a wild ride. Last week we had the biggest daily rise in 5 years followed by the biggest daily fall since the GFC - and the XAO made a new all-time high.

What else has happened in the last 3 weeks since my last report? Not a lot is the short answer. The market has continued the sideways action it has been locked in for the past 6 months. I had hoped the mad rally in prices early last week might have been maintained and we would have seen a break out of a pennant pattern the XAO has been building for several months. Below is an image of how I saw this pattern a couple of weeks ago, where a break above the upper boundary of the pennant (blue dashed line) would suggest a rally towards 8,000.

XAO pennant7Jan22

However, price has fallen back from that potential breakout and if it can’t claw its way back to another all-time high and confirm a break up out of the pennant pattern, then it could fall back to 7,500 again. If that fall precedes another move up from 7,500 then the shape of the XAO pattern is more likely to be a rectangular flag pattern (both pennant and flag patterns have the same meaning – they are just different shapes).

XAO flag 7Jan2022

Both are more likely to break up and lead to a rally than break down into a correction, but a flag pattern would need to see prices break above 7,900 to suggest a good rally.

The other alternative is that price falls and breaks down below 7,500 and we would then be on the road to a correction or even a bear market - but until the market shows its hand, this is all just speculation.

I had a quick look at some of our sector charts and in summary - Energy, Financials, Resources and Materials all have bullish charts – but of course that doesn’t mean all stocks in those sectors will rise. Consumer Discretionary looks to be rolling over after a strong Covid stimulus run up (no surprises there). Gold has a very bearish chart but would seemed to have bottomed a little over 12 months ago and may be heading for a recovery – although it remains in a downtrend and therefore it may be a bit premature to buy in yet. Health Care has gone nowhere for a couple of years and is currently in a formal downtrend. IT is also in a sideways action and a downtrend.

Interest rates and inflation are potentially the ‘elephants in the room’ and were cash rates to move up to combat inflation, a fall in equities is possible. You only need to look at what a spike in US bond rates and the Federal Reserve suggesting that rate rises are on the horizon did to prices this week. Yes, the initial dip recovered but sometimes these dips are how corrections start. They take on a life of their own as spooked investors blindly bolt for the door.

The old supposed Chinese curse (although there’s no evidence of the Chinese being its source) - ‘may you live in interesting times’ could apply to share trading in 2022.

Any step back by the market will hurt speculative stocks with sky high valuations more significantly than blue chip stocks and sticking with good solid companies that are ideally nearer their lows than their highs is potentially a good defensive plan. A stock forum I belong to asked members to pick 4 stocks they felt would do well in 2022. These sort of contests are usually won not by chartists but by fundamental analysts who back speculative stocks with good but unproven prospects. Those that kick a goal make huge gains – but for every one that performs I suspect 10 more fall by the wayside.  

Anyway, I scanned the XAO and came up with the following stocks that were coming off significant lows and showing potential signs of moving up again – ie buy the break above downtrend theory.

A2M, ABC, AGL, CGC, CGF, DUB, FLT, NCM, NUF, PDN, RRL, SPL and WEB.

Only being able to pick 4 stocks meant it was something of a ‘pin the tail on the donkey’ exercise but I ultimately settled for the last 4 of those stocks (PDN, RRL, SPL and WEB) to be put forward as my 2022 picks.

Looking back at my old posts I realised that I also picked 11 stocks that I thought might do well at this time last year. The results were a mixed bag as the table on the left of the chart below shows.

ASX Sectors 2021

Of my picks, 70% rose but of those that fell 2 did so very badly. Would a trader in those 2 losing trades (BPT and IFM) have escaped damage by exiting? Probably not, as both had large one day falls that would have caught most traders out. BPT did recover 50% of its losses and made a pattern predicting same, so a knowledgeable chartist might have cut their losses then. IFM’s fall from grace was closer to the end of 2021 and while still well under water, it is making a comeback and for a trader prepared to work out this damaged trade, they may yet recover their losses.

My last Stocks to Watch in mid-December have generally done well with all but 1 rising (I haven’t kept stats of by how much). The losing pick was HUB, and having last week made a lower low I’ve removed it.

TLX has almost achieved target and with little upside left has been removed. PLS blasted past target and could be one to take profit on – so also removed.

To Stocks to Watch I’ve added PDN (potential pennant break out), TRS (an ‘on again, off again’ pick over the past year), and ADO (potential resistance break). ABR was a close contender for listing for those who want to check it out.

Good luck for 2022 – you might need it!

Contact

Robert Norman

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

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