Trading Diary

Trading Diary – 7 Mar 2019

This week we sold three losing positions, including Inghams (ING), National Storage (NSR) and Evolution Mining (EVN). The losses on each position were 7.8%, 7.4% and 10.5% respectively. We held each of these three stocks for 21 days.

We have also added a number of new positions, which we’ll discuss below.

Inghams Group (ING)

We purchased Inghams on what we thought might be a pullback into the last point of support, which formerly acted as resistance. The support did not hold and the stock traded back into the trading range following which it was sold down heavily on increased volume after the release of H1 earnings.

H1 earnings showed that the company was able to continue to grow volumes and pass on to customers increased input costs during the half. However, there is a question mark over whether they will be able to continue to do so, especially as feed costs are expected to remain elevated.

Inghams (ING) – Daily chart

National Storage (NSR)

Similarly, we purchased National Storage on what looked like a pullback, following a significant sign of strength rally that took the stock above short term resistance. This same level also represented a significant area of long term resistance, where the stock had previously registered its all-time high in May 2016.

Unfortunately, the resistance level proved too strong and following some low volume tests it was sold down on heavy volume following the release of H1 19 earnings. The stock continued lower to close below its 100 DMA and has fallen out of the top quintile of companies showing the most robust momentum.

National Storage (NSR) – Daily chart

Evolution Mining (EVN)

We entered Evolution Mining on what looked like a pullback following a jump across the creek above resistance. From a shorter time horizon perspective, the stock had been in a trading range since the beginning of January 2019, which exhibited common Wyckoffian characteristics, including numerous tests of support and resistance.

Ultimately this trading range turned out to be a distribution trading range, with the breakout above the $3.90 resistance level representing an upthrust after distribution, which failed the test of new demand.

Ultimately the stock was not able to recover the trading range following Chairman Jake Kleins sale of 2.5m shares in the company, representing nearly 20% of his total shareholding.  

Evolution Mining (EVN) – Daily chart

We replaced these sales with three new buys, one in the Technology sector and two in the Metals and Mining industry.

Appen (APX)

Appen is one of the big 5 Australian technology companies that comprise the WAAAX acronym including Wisetech, Afterpay, Altium, Appen and Xero. These stocks have been incredibly strong performers over the last few years driven by both sentiment towards the sector and raw fundamentals.

Appen had been in a trading range since mid-2018. The general market weakness that occurred in the fourth quarter of last year resulted in the stock falling briefly below resistance in October, before quickly recovering, showing the character of a shakeout, in November, December and January. A break-out above resistance finally occurred in January followed by a big gap up move on the release of H1 19 earnings.

The earnings release showed a company uniquely positioned to execute in a high growth market. A pullback from current levels is warranted; however, provided the withdrawal holds the gap made on the day of the release of earnings, this will not be of concern.

Appen (APX) – Daily chart

Appen (APX) – Daily chart

Mount Gibson (MGX) and Fortescue Metals (FMG)

Mount Gibson and Fortescue Metals are both Iron Ore producers whose stock prices have exhibited substantial advances on the back of higher iron ore prices. Mount Gibson, in particular, is due for a pullback. However, we incline not to try and predict when or if this is likely to take place.

The disaster at one of Vale’s iron ore mines in south-eastern Brazil that occurred on January 25 has had an enormous impact on the price of iron ore. There is significant uncertainty as to how long supply will be constrained; however, for the time being, the stock prices of iron ore companies are responding powerfully to the price rises.

Fortescue Metals (FMG) – Daily chart

Fortescue Metals (FMG) – Weekly chart

Mount Gibson (MGX)  – Weekly chart

By Danny Sandler

Founder of Ocean Asset Management.