Inside the market

Gold showing strength

The All Ordinaries index was down 0.6% for the week, ending 1 February 2018. Having moved above its 100 DMA last week, it has spent the week consolidating just above. The index closed 2.7% below its 200 DMA. Of the 476 stocks currently comprising the index, only 198 of these (42%) ended the week above their respective 100 DMAs, up from 189 names at the end of last week.  Two hundred fifty-four stocks were up for the week, while 222 ended the week flat or down. One hundred and eighty-seven shares ended the week within 20% of their 52-week highs, while only 43 names are within 5% of highs.

Of the stocks within 5% of the new high territory, there is a preponderance of names in the Real Estate (17) and Materials (10) sectors. This is not altogether unexpected given that on a trailing 12-month basis the Real Estate sector is the only sector currently showing positive returns. Also, with the price of gold and the price of iron ore both up sharply over the last few months, it follows that the producers of these commodities should also be active.

Alongside the Materials names, last week was mostly a continuation of the themes that have persisted since the week ending December 24, with Information Technology and Energy companies continuing to recover ground.

The Consumer Discretionary and Financials sectors continued their downtrend. Healthcare was the worst performing sector for the week, which was in contrast to the previous four weeks, post-December 24, where the sector had been mainly in recovery mode. A 20% decline in Resmed and an 8% decline in Fisher and Paykel Healthcare accounts for much of this weakness in Healthcare.    

WAAAX names were again solid, with Wisetech, Afterpay, Appen, Altium and Xero up 4.7%, 3.9%, 3.6%, 4.4% and 3.1% respectively for the week. These companies are all within 20% of new highs, except for Afterpay, who is still 30% below its high. Other technology leaders including NEXTDC, Technology One, Bravura and Codan also continued to perform strongly during the week.

With the gold price up substantially since October last year, gold companies have become some of the leading names in the index.

Saracen Minerals (SAR)

Saracen is up nearly 80% since the beginning of October 2018. While the index has struggled, the share price of SAR has moved in the opposite direction and is now a leading momentum stock in the index. The stock was up another 14% last week.

Gold Road Resources (GOR)

GOR is another gold company that was breaking out last week. Gold Road is a smaller cap name with a market capitalisation of $675m. The stock has been in a trading range since September last year but now seems to have broken out on significant volume. The share price provided a similar breakout signal in January 2018, before breaking down again in May. It will be interesting to see what happens this time around.

St Barbara (SBM)

SBM was up 11% last week and is now back within 6% of its highs, having spent the second half of last year consolidating gains from the previous uptrend. Technically, the stock looks to be in an excellent position to continue its uptrend.

Regis Resources (RRL)

Appreciated 9% last week and broke out of a small trading range, with a sign of strength rally on above-average volume. The stock is approaching 52-week highs and is looking very strong indeed.  

Newcrest Mining (NCM)

The largest of the group, however showing character that is no less compelling. The stock was up 8.6% last week and is now very close to its 52-week high price. The stock has been in an extended trading range since July 2016 and is now approaching the top of that range, having broken out of a shorter term trading range at the beginning of January. Volume has been above average on up moves and subdued on pullbacks, which is a good sign however a sign of strength rally that took the price through $25 would be very positive as there has been resistance at this level in the past.  

Gold and Iron Ore holding up index

The Materials sector comprises ~28% of the index, and iron ore and gold producers account for a large portion of the sector. It’s important to note that without rallying gold and iron ore prices, the index itself would likely be far weaker.

By Danny Sandler

Founder of Ocean Asset Management.