The overall Australian market had a spectacular run in October this year, up a staggering 15 percent from trough to peak on the ASX/S&P 200. In light of this you may wish to ask the experts what stocks are likely to pull back in the new term.
Market Analyser Can Help
You can use the Market Analyser software to identify keys stocks which are indicating that they’re due for a pull back.
Start by using the Watchlist Wizard tool to quickly create a watchlist of stocks from the ASX Top 300. (See below for instructions on using the Watchlist Wizard.)
We can then use the Prealerts scanner available to Market Analyser users to identify stocks that indicate there is “distribution” taking place, as stock is offloaded into the weaker hands.
Set up this scan through the Analyser Wizard, a handy tool within the Market Analyser allowing you to access the Prealerts indicators. For help with this tool check this post.
Yesterday’s scan produced the following list:
As you can see there are a number of stocks that are currently undergoing distribution and could offer a potential sell signal. You may want to research these companies further before entering a trade.
The effectiveness of this scan depends on the current trend of the underlying stock, and we have illustrated this in the following three candidates which came up in a recent scan:
1) AWE Limited (AWE)
2) Metcash (MTS)
3) Spotless (SPT)
Note that you can also use volume as a confirmation of the sell signal, as you would be looking for volume to pick up as the share price falls.
AWE Limited (AWE)
AWE (formerly Australian Worldwide Exploration Limited) is engaged in exploration, development and production of oil, gas and condensate primarily in Australia and New Zealand. AWE concentrates on exploration and appraisal-type assets, in regions of proven prospectivity and where there is a high chance of commercial success.
You can see that the Prealerts worked fabulously for AWE earlier in the year, giving four winning sell signals when the general trend of the stock was down. Now that the stock price is attempting to recover, the Prealerts offer a good signal of when the stock price is likely to take a pause. AWE is now at a key resistance level, but you would want the stock price to trade below the previous swing to confirm a sell signal.
Metcash (MTS)
Metcash Limited (formerly Metcash Trading) is a wholesale distribution and marketing company specialising in grocery, fresh produce, liquor, hardware and other fast-moving consumer goods. MTS has four business units: IGA Distribution, Campbells Wholesale, Australian Liquor Marketers and Mitre 10.
Metcash has been trading sideways for the past couple of months and the Prealerts signal has given a great signal that the share prices was due for a pull back. If you took this signal you would be up 4.5% in two days and would be watching carefully for price action around the $4.10 level which has been the key support level for the past couple of months.
Spotless Group (SPT)
Spotless Group Limited is engaged in the provision and outsourcing of labour-based services in Australia, NZ and USA. Their Retailer Services division provides hanger systems, labels and packaging to the garment manufacturing and retail industries worldwide. Facility Services provides facilities management and support services like cleaning, food, linen and garment services in Australia and NZ.
Again the Prealert scan gave a great signal back in mid-May. There was another signal in early October which pre-empted a sideways move for 3 weeks, but now we have a signal in as the share price finds resistance at multi-year highs, and offers a low risk sell signal. Note that Spotless Group has confirmed it has received a $698 million takeover proposal (at $2.63 per share) from buyout firm Pacific Equity Partners, but says its directors view the bid as too low. The bid from PEP comes six months after Spotless rejected a $657 million offer from US buyout giant Blackstone Group.
Summary
Utilise the Prealerts features in Market Analyser to scan the markets for your specific trade selection criteria. You will save time and identify some likely pullback candidates.
By Michael Hevern
Investment Adviser
For Buy and Sell recommendations on ASX listed companies register for a FREE trial of MDS Financial Research.
Instructions – Using the Watchlist Wizard
1. In Market Analyser, open a watchlist window by selecting Menu > Watchlist
2. Click on the Watchlists item on the top menu bar, and select Watchlist Wizard.
3. In the Watchlist Wizard window click Next, select Australia from the Countries list, then select ASX Top 300 from the Available Watchlists list on the right of the window.
4. Click the Update button. Your new ASX Top 300 watchlist will now be available from your watchlist window.
Disclaimer: The information provided within this article is not an invitation to trade a specific stock, but is intended for educational purposes only.
Tags: asx/s&p 200, Market Analyser, market scanning, technical indicators, Trader Dealer, Trading Strategies, XJO
