A week is a long time in the market
JUST like politics, a week in the market can be a long time. Last week a divergence occurred between the ASX 200 and the SPI futures contract it trades against.
There was also a significant divergence between BHP and RIO, another pair of stocks that consistently move in the direction the divergence indicates. In the case of the indices, the ASX 200 did not trade below the low of two weeks previous and the SPI very clearly did, indicating both would move to the upside.
BHP traded well below the early May low and RIO did not trade anywhere near that low, again indicating both would move to the upside. As of Wednesday this week the indications of both these divergences have come to pass as all four have moved to the upside.
It is also possible that we will see weekly pivot points to the upside on the All Ords and the ASX 200 by the close of trade today (Wednesday). This will require the All Ords to close above 5826.
The strong stocks in the market are still health care and tech stocks along with many resource stocks.
None of the stocks held was stopped out last week, but there has been no opportunity to raise their respective trailing stops as yet. However, on Wednesday The A2 Milk Company (A2M) traded down to a spike low of $3.80 before rebounding to be up on the day. This tells me the $3.80 stop is definitely strong support and a break below that would warrant selling.
Pantoro (PNR) also spiked down to its stop level of 23c on June 23 before moving back up to its opening price for the day, confirming the validity of its stop.
If you are looking at stock charts, Bougainville Copper (BOC) is a small resource stock forming a classic cup and handle pattern, but the volume is far too low for me to consider trading it.
Another stock I mentioned some time back, Pepper Group (PEP) had formed a classic halfway candle pattern on the weekly chart. The target for the rest of the move would be around $3.80, which also happens to be its all-time high.
It will be interesting to see how it performs.
Because the stop on A2M is above break even I have been looking for another trade and on Wednesday I had to decide between two stocks that formed daily buy signals. They were Big Un Ltd (BIG) and Lynas Corporation (LYC).
BIG formed a strong consolidation pattern between 60c and 80c with a projected target around $1, and has now traded just short of the $1 target. Wednesday’s buy signal is indicating it will likely move above $1– a significant support/resistance level. I decided it would be more prudent to wait until it has broken above $1 and had a pullback to test that level before looking for another buy signal.
LYC has tested the 10.5c level three times in four months, telling me it wants to break this level. So I bought 40,000 shares yesterday.
PORTFOLIO POSITION Cash ......................... $327,782 Shares ........................ $27,905 Total ......................... $355,687 Starting capital of $50,000 in July 2006. www.thedaytrader.com.au