Technicals | Mar 31 2020
By Michael Gable
A couple of weeks ago we highlighted the fact that the S&P500 Index could be finding support at the right levels and that the downside momentum was starting to wane. Last week we saw infections continue to increase globally but share markets rallied. Why? As we've been discussing with our portfolio clients, it is because the market is forward looking. If you are waiting for a vaccine then you are buying the market after it has already rallied 30%.
The tell-tale sign that we were ready to rally came on Monday last week. On the east coast, further lockdown measures were announced. Cafes and restaurants had to close; people were advised to stay home. The market got smashed in the morning. Then it bounced in the afternoon. That was the "a-ha!" moment. Why? It's because we have added certainty to this whole mess. The week before we had people bumbling around, not knowing whether to stay home or not, not knowing if it was OK to go to the gym or the pub, and infections were rising. Then we had the lockdown measures. It scared a lot of other people in the market into selling their shares. But we had clarity. By restricting movement, we have entered a path that can get us out of this. Infections will increase for 2-3 weeks, but then they should go back down, as evidenced by what has happened in other countries. That is, we had a light at the end of the tunnel.
Remember, the market is forward looking. Yes, this thing will get worse, but the end game is now in focus. Donald Trump announcing his stimulus helped light the fuse. We now have, 1. Light at the end of the tunnel, and 2. Plenty of printed money being thrown around. It seems that every man and his dog is getting a handout yet many will be back at work probably a lot quicker than was/still is being priced in. Are there still things to worry about? Of course there is, there always is. But if the bulk of the selling has been done, then you can see why some of the quality names are rallying hard.
As we mentioned in our intro two weeks ago, as soon as the market strings together more than one day up at a time, we could see stocks rally more than 20%. Are we going to get the retest of the low? That is what has happened almost every time in the past
But everyone seems to be saying the same thing, which means the opposite could probably happen. That is, we just keep making progress higher from here without looking back. I don't have a crystal ball, I can tell you what has happened in the past and what the probabilities are, but at the end of the day we have to respect price action. At the moment the price action is saying that markets are oversold and need to be at higher levels based on what we now, rationally, can make of the situation. Panic selling is gone for now. It may return, but trading ranges are starting to tighten up and things are, compared to the last few weeks, looking a bit more orderly. This is why we have been on the phone all of last week adding positions to portfolios. The market is like a game of musical chairs, you have to dance now that the music is playing, but just make sure when the music stops again you sit down as quick as you can, no faffing about.
In this week's report, we take a look at almond grower Select Harvests ((SHV)).
The recent sell-off saw SHV head back near the 2018 low and bounce strongly from that, indicating that the low $5's will offer good support for now. In the last few days, we have also seen SHV hold up well with the daily ranges getting a bit smaller compared a few weeks ago. This is a good sign and tells us that SHV wants to head higher. A break through $7.50 would be the next buying opportunity.
Fairmont Equities is a share advisory firm assisting Private Clients with the professional management of their share portfolio. We are based in the Sydney CBD but provide services to private clients across Australia. We believe that the concepts of fundamental analysis and technical analysis of stocks are not mutually exclusive. Regardless of whether you are a trader or long term investor, combining both methods is crucial to success. As a result, the unique analysis of Fairmont Equities is featured regularly in the media such as Sky News Business, CNBC, The Australian Financial Review, and the ASX newsletter. Contact us for a free trial of our research and information on our portfolio management services.
Michael is RG146 Accredited and holds the following formal qualifications:
• Bachelor of Engineering, Hons. (University of Sydney)
• Bachelor of Commerce (University of Sydney)
• Diploma of Mortgage Lending (Finsia)
• Diploma of Financial Services [Financial Planning] (Finsia)
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2
Fairmont Equities Australia (ACN 615 592 802) is a holder of an Australian Financial Services License (No. 494022). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.
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