Large cap Resources leading

The All Ordinaries index was up 0.2% for the week, ending 15 February 2018. The index ended the week 0.8% above its 200 DMA, consolidating the previous week’s move above the 200 DMA, with one minor test of the moving average on Monday.

Of the 474 stocks currently comprising the index, 260 of these (55%) ended the week above their respective 100 DMAs, up from 230 (48%) names at the end of last week.  Two hundred sixty-five stocks were up for the week, while 209 ended the week flat or down. Two hundred and sixteen shares finished the week within 20% of their 52-week highs, with 76 of those within 5% of highs.

The Real Estate sector continued to dominate the list of companies within 5% of new highs, accounting for 22 out of the total 76 and representing 47% of the sector.

Five of the seven heavyweight Material companies, with market caps greater than $10b, are now within 5% of new 52 week highs. This is a remarkable statistic as these companies account for approximately 67% of the Materials sector market capitalisation, which in turn accounts for 18% of the entire index.    

Large-cap Materials, Energy and Information Technology companies again drove the index performance forward last week, while Consumer Staples, Healthcare and Financials held the index back.

The list of mega-cap Materials companies making runs at 52-week highs is growing by the week. Putting to one side the Gold names that we’ve discussed here previously, momentum is kicking off primarily in the larger caps for the time being but could morph into something broader-based, which is something to keep an eye on.

Materials

The Materials index has been in a trading range since the beginning of 2018, pausing in what looks like a potential re-accumulation phase of a longer-term uptrend, which began in January 2016.

Metals and Mining companies currently have the highest representation in the momentum list (top decile of stocks ranked by intermediate term momentum), with 11 out of the 43 names making up the list belonging to the Metals and Mining industry.

Of these, large caps rule the day with a median market cap of $2.8b for those appearing in the momentum list, compared to a median market cap of $487m for the entire group.

We’ll take a look at some of the mega cap chart formations below.

BHP Limited (BHP)

Making new highs as it moves out of what looks like a re-accumulation trading range that began in early 2018. This latest move is part of a long-term uptrend that started in January 2016, right around the time that the price of iron ore bottomed.  

Rio Tinto (RIO)

A very similar formulation to that of BHP described above. The stock is emerging from a year-long re-accumulation trading range in a longer-term uptrend.

Fortesque Metals (FMG)

The chart of FMG looks very different to those of BHP and RIO however the signs of strength displayed in the last few weeks is no less significant and has been accompanied by a substantial increase in volume, adding to the significance of the move.

FMG does appear to more closely mirror the price of Iron Ore, which puts this chart into context given the interim top in the price of Iron Ore in February 2017, followed by a multi-year consolidation phase that is still in the process of resolving itself.

Large caps leading

Large capitalisation stocks have been the strongest in the index, with 72% of companies with the strongest (top decile) intermediate term momentum coming from the top 200 largest stocks, when ranked by market capitalisation.

The median market cap for those companies appearing in the list of top momentum stocks is $2.3b, compared to a median market cap of $676m for the entire index.

We would expect smaller companies to start appearing on the list in more significant numbers as investors become comfortable taking on risk again. However, this has so far not yet happened.