In the past year economists have been complaining that the RBA has been setting monetary policy for the states that have been racing ahead because of their exposure to the mining sector. It is only in the last couple of months that we have seen interest rates pull back in deference to the rest of the Australian economy. Retailers, builders and consumer-related companies have been doing it tough in the past couple of years.
Our new IRESS-based trading platforms (including Market Analyser 7 and The Bourse 7) give clients access to our proprietary D2MX Trade Tool set. Today we’re going to use these tools to identify stocks that are challenged in this economic environment and those that are outperforming.
[Get a free software trial here!]
Figure 1: D2MX Trade Tools Menu
Scanning for Outperforming Stocks
First we look for stocks that are in a rising trend and are making new highs. Using the Analyser Wizard tool we scan for stocks with:
• Rising medium-term trends with the 40 day moving average above the 150 day moving average
• Plus, rising short-term trends with the 13 day moving average above the 40 day moving average
• And, to ensure that there is short-term momentum, we make sure that the stock price has made a new high in the last 10 days.
Figure 2: The D2MX Analyser Wizard – Uptrending Stocks Scan
Scanning for Underperforming Stocks
Here we look for stocks that are in a falling trend and are making new lows. Using the Analyser Wizard we scan for stocks with:
• Falling medium-term trends with the 40 day moving average below the 150 day moving average
• Plus, falling short-term trends with the 13 day moving average below the 40 day moving average
• And, to ensure that there is short-term momentum, we make sure that the stock price has made a new low in the last 10 days.
Figure 3: The D2MX Analyser Wizard – Downtrending Stocks Scan
The Results
One of the recurring criticisms about this market is the lack of liquidity and trading volumes, which are as little as 50% of what they were just over a year ago. With this in mind we used the ASX 100 for our list of stocks that we are interested in trading.
The Uptrending Stocks scan produced a list of 22 potential trading candidates that are in an uptrend in the medium- and shorter-term and have recently made new highs (see the list below). An interesting aside is that this list has a high proportion of companies that are delivering high yields, which says something about of the state of investors’ psyche at the moment.
Figure 4: Results of Uptrending Stocks scan run on 18 July 2012
The Downtrending Stocks scan produced a list of 17 potential trading candidates that are in a downtrend in the medium and shorter-term and have recently made new lows. You will note that this list is dominated by stocks from the mining and energy sectors, which have clearly underperformed in the Aussie market in the run up since last October.
Figure 5: Results of Downtrending Stocks scan run on 18 July 2012
Sample Trades
To give you an idea about the types of stocks the scans highlighted, I have provided a couple of sample charts for CSL and Macquarie Bank below.
Chart: CSL (CSL) – in a clear uptrend and moving higher
Chart: Macquarie Bank (MQG) – in a clear downtrend
The Trade
There is no doubt that this is a challenging market for investors, but using some simple tools that D2MX can provide through its IRESS Trader platform you can quickly highlight stocks that are suitable for your investment outlook. This analysis can be done on a regular basis and should take you no more than five minutes.
If you want to try a Long/Short strategy you can do that too through the use of Mini Warrants, which have been discussed in earlier articles, by going Long the outperforming stock(s), while Shorting the underperforming stock(s). Refer to:
Warrant Trading for All Types of Market Environments Series
Part 1 – Shorting With Limited Risk Using MINIs
Part 2 – Boosting Dividend Yield Using Warrants
Utilise the D2MX features in the IRESS Trader platform to select your trades, according to your market view. You will save time and potentially increase your returns by trading with the trend.
Contact me at D2MX Trading on 1300 610 024 and I can help you trade, using a number of strategies that will give you the tools to navigate this market and help you boost your returns on investment.
Michael Hevern
Investment Adviser D2MX Trading
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.
For Buy and Sell recommendations on ASX listed companies register for a free trial of MDS Financial Research.
The D2MX Financial Advisory Services offers general advice on trading options to generate consistent steady income on your investment portfolio. Call 1300 610 024 for further information.
Tags: asx100, d2mx, d2mx trade tools, down trend, Iress, Market Analyser, market scanning, uptrend
