Weekly Blog - 29 April 2022

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.

Weekly Blog - 22 April 2022

Another tumultuous week which saw (personally) good gains until Friday came and swept it all away. The pundits all seem to say Australia’s fundamentals are OK and it is all down to fear of rising interest rates and a likely downturn in the USA.

The charting outlook for the XAO is little changed with the index having hit resistance around 7,900 as it has now done 3 times since August last year. Should price again fall back to 7,500 as it has also done 3 times since August things are less rosy with the XAO having made a triple top – a very strong predicter of bigger falls ahead. If (as I suspect) price rallies again after this current kneejerk reaction to make a new high, that would negate the triple top and we live to fight another day. And, from a technical perspective double and triple highs over a short time frame like this need to be almost exactly the same peak and there is enough difference between the two previous peaks and this week’s to make me think that criteria has not been met.

XAO 22Apr22

Needless to say many stocks chart outlook took a dive this week and of last week’s Stocks to Watch only PME moved up, with PDN and RRL falling by 15% and 10% respectively. I’ve removed PDN, OZL and ASM because their charts are now less supportive of a quick turnaround – but that’s not to say it can’t happen. PDN still has a pattern break that suggests higher prices (but it is hard to argue with a 15% fall in price) and both OZL and ASM made lower lows – suggesting lower prices to come.

I’ve added FLT, COH and BPT this week. All have positive charts and FLT is likely to benefit in the resurgence of international travel, COH has broken up out of a pennant pattern (high probability of further rises) and BPT is likely to benefit from the escalating energy crisis in Europe. All three stocks rose last week.

With the Dow Jones having fallen 2.8% Friday night, the outlook for Monday here isn’t exactly bright. Hopefully, the US was just a reflection of our Friday fall and the bargain hunters will be out and about next week. The XAO is at a band of support and providing it doesn’t fall below 7,700 on Monday the chances of the market living up to my expectation of hitting 8,000 remain good.

A closing word of warning. The elephant in the room at the moment is China, not because of their aggressive attitude towards anyone who they feel doesn't support their China first view, but because of the damage Covid may do to their economy and in turn ours. Their government seems hellbent on maintaining a Covid free policy despite (if you believe media reports) that policy resulting in scenes more likely found in an end of civilisation dysposian novel than a world leading economic power. For me, my money is on the virus winning that struggle and while ultimatley China will, like the rest of the world, survive to live with Covid, ithe short term economic upheaval could impact our China dependent imports and exports and the share price of some companies. 

Weekly Blog - 15 April 2022

With the Easter break I was a bit surprised by the buying on Thursday, but as they say, ‘never look a gift horse in the mouth’.

Both my personal portfolio and my educational (theoretical) portfolios trebled this result – so again, traders fortunes were determined by the sectors held. Both my portfolios are fairly diversified and defensive – so I’ve had days where the market does well and I see only mediocre performance, while on days when the market has been flat, I’ve seen good gains. It’s a crazy game.

Gold has been a bit of a disappointment for me this year as I expected more interest in it as a safe haven from the troubles of the world – of which there seem to be plenty at the moment. Looking at the chart of the gold sector below, price fell to long-term support (the blue dashed line) and rose as would be expected. However, it then decided to retest that earlier low (a common move) before trending up. Price has broken above a minor level of resistance at 6,970 before retesting it and moving up again. I’m expecting the sector to go to around 8,300 as an initial target.

XGD 15Apr22

If we look at GLD there is a not unexpected similarity in the price pattern.

GLD 15Apr22

Some might see this chart as a double top which predicts material falls in price. They could be right, but I think prices will move up to make a higher high and invalidate the double top.

Anyway, it could be a good time to think about gold stocks.

Stocks to Watch is still very much akin to a game of Pin the Tail on the Donkey, but last week’s picks did well with BRB up 15.4%, RRL 17.2% and SLR 8.3%. All are gold stocks – which explains the rise. PDN finally got some traction and rose 6.6% for the week. It’s a stock I’ve been watching for a while and having now broken out of a long-term pennant pattern (and above a downtrend) it would seem to have the potential to go places (yes, I know ‘places’ could mean lower places as well as higher places – but I’m backing higher.)

I’ve not changed my list this week as those picks that rose all have the potential to go higher and the only laggard I have some concerns about it ASM, which fell 6% this week. More falls would see ASM as a losing pick, but I’ve left it in place as it is still sitting above or on a level of long-term support which has held since the stock was listed just under 2 years ago (so not a lot of history in charting terms, making ASM a slightly risky candidate for charting purposes).

The XAO stalled at 7,800 resistance before falling back a tad. However, the week’s candle was positive, closing almost at its high, being the highest close since September last year. Failing bad news, I expect the XAO to continue its push towards 8,050 or higher. Despite this optimism you need to be careful of spec stocks and any stock not yet turning a dollar – just look at what the Nasdaq as done (down over 15% for the year to date)

Weekly Blog - 8 April 2022

Another rollercoaster of a week with the market tossed around by concerns about rising interest rates and inflation as well as predictions of a US recession and of course Vlad the Impaler’s poorly thought out conquest of Ukraine.

With the XAO falling 0.2% for the week, most long term investors would have gone nowhere (my own trading was in line with the general market). The Nasdaq continues to take a hammering (down over 12% for the year to date) and high value but yet to turn a profit stocks here have also been shipping water.

The XAO rose from a minor support level on Friday and (barring unforeseen events) I’d expect higher prices next week. That said, the market had a big recent run up to its present level and the possibility of further falls before the next move up need to be considered as a possibility.

With my Stocks to Watch I’ve removed LTR and TNE because they have both achieved my suggested targets. They may go higher, but for now the patterns I saw in the first instance have been fulfilled. You would have needed to be quick to get out of LTR after it hit target on Monday, as it went on to lose 11% over the next 4 session. I sold 50% of my holding but there is a potential higher target of $2.35 (and I didn’t expect the price to fall as much as it did - or I would have sold the lot – to fight again another day). Hopefully, price will lift from Friday’s low but further falls to $1.60 are certainly on the cards.

LTR 8Apr22

TNE has a similar story having reached target last Wednesday week. I left it in play because it kicked up Friday week ago and I hoped it would go on to make a higher target of $12.40. It followed LTR into the sin bin (along with many other stocks I should say). It looks as if it may bounce up from a minor level of support at this week’s lows. So, like LTR, I’ll keep watching this one.

TNE 8Apr22

I’ve added PME and RTR to replace the aforementioned LTR and TNE.

With big moves being a regular feature of the current market, it remains a difficult time to try and pick winners, and defensive stocks remain a good option. TCL and TLS are two large cap shares I like at the moment that are certainly worth a look.

Weekly Blog - 1 April 2022

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.

Weekly Blog - 25 March 22

The XAO has broken and closed above resistance and technically can now aspire to top out about 8,000. I wouldn’t be so bold as to suggest there might not be a few steps backwards along the way, but with a good strong candle last week, next week could see further improvement if there is no major bad news to rock the boat.

The next level of overhead resistance is around 7,850 so that would be a place I’d expect to see a week or two down before a final push higher.

Last week’s Stocks to Watch had a couple of winners with PLS and LKE both up 14.5%. LKE reached its target and with less potential to rise I’ve deleted it from this week’s list. JLG is also gone as it tends to trade in a narrow price band and while likely to seesaw its way higher, it is near the top of that range and more of a long-term hold than one that will rocket higher. I’ve added ASM which is potentially likely to rise off a line of long-term support and LTR which is moving up strongly, possibly on a Wave 5 (as in Elliott Wave Theory).

There are quite a few other stocks I like at the moment, such as MLD, AIA, EVN and COH – just to name a few. However too many to go into detail on.

Let’s hope the rally continues.

Weekly Blog - 18 March 2022

A great little rally this week saw the XAO up 3.2%. If your portfolio was weighted towards the finance (+6%), IT (+8%) or health sector (+5.5%) you may have done better than the XAO, while gold, materials and resources all ended in the red.

The XAO broke above resistance at 7,490 to make a potential target of 7,650 which is a level of overhead resistance. Should the current rally see prices close above 7,650 then that would suggest a longer-term target of 8,050.

While the targets above are certainly backed by the charts, the market remains extremely volatile and geopolitical tensions remain a worry for investors.

With my Stocks to Watch, LKE was the standout, being up 20% while TNE put on 6% and JLG 7%. This week I’ve dropped LKE because it’s price is now very close to my target and anyone thinking of trading now has probably missed the bus. I’ve replaced LKE with CGF who is making a fourth try to break above resistance at $7.22 and in the process make a target of $9.68.

XAO 18Mar22

Weekly Blog - 11 March 2022

While numerous issues exist that could see the market fall further, I feel we’ve seen the worst of it and recovery, albeit bedevilled by volatility, is likely to remain the story for some time.

For the past 7 weeks the XAO has opened and closed in a range of about 3.3% bounded by 7500 to 7250.

For the XAO a confident close above 7,650 would be needed to make a higher trough followed by a higher peak on the weekly chart to signify a buy signal, and probable higher prices head.

There are some potential buys in the materials sector and while I’ve largely ignored these given the tricky market conditions over the last few weeks, I have now reviewed my Stocks to Watch listings.

While the listed stocks have been up and down over the past few weeks I have felt they had all retained potential to move up and last week most made significant gains – PDN (up 18%) and JGL (8%). FLT which fell away on problems in Ukraine made a 4% recovery this week. However, with airlines facing significant fuel price increases that will be factored into travel prices, the sector probably remains challenged.

I’ve removed FLT because of the above reasons, also gone are TRS (quite likely to rise from current prices but has really gone nowhere in 12 months), TLS (has fallen down out of its price channel for now), MQG (also fallen below support of long-standing price channel), and finally ILU (because it recently almost achieved a target I had for it, before falling away). Would I sell any of those delisted stocks if I was holding them – TLS, yes, and I’d be closely watching MQG and TRS, but the others, no.

I identified the following likey additions to my Stocks to Watch list - LKE (up 30% last week but potential for another 25%), TNE, PLS (coming of a price channel low that has turned price several times previously), BRB (coming off price channel low), ASM (closed above a weekly downtrend for 2 consecutive weeks – a strong buy signal), SLR (broken above significant resistance level that suggests a potential rise back above $2.70), RRL (broken above long-term downtrend, significant low, and price channel lower boundary), CXO (mentioned last week and rose 14% with probably more fuel in the tank), and finally COH (possibly starting new rally from a significant low).

The above stocks, if listed, would have seen the list grow to 13 and as I keep it to a maximum of 10, I have left out ASM, COH and CXO for a variety of reasons. 

Contact

Robert Norman

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

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